Direct labour rate variance
Direct labour rate variance measures the cost of paying workers at rates that differ from the standard: (standard rate − actual rate) × actual hours worked. A positive figure is favourable; a negative figure is adverse.
FrameworkStandard costing and variance analysis
See it move
Standard labour cost assumes €15 an hour; actual pay comes to €16 an hour, for the same 2,000 hours worked. Standard cost is therefore €30,000 against an actual €32,000. The rate variance, (€15 − €16) × 2,000 hours, is €2,000 adverse — the extra euro per hour, not the hours themselves, drives the gap.
The formula
Variables
- standard rate per hour agreed for that grade of worker (€ per hour)
- actual rate per hour paid during the period (€ per hour)
- actual hours worked by direct labour during the period (hours)
Positive result is favourable; negative is adverse. Responsibility typically rests with human resources or procurement, not the production supervisor.
Check yourself
During May, workers were paid €16.50 per hour against a standard rate of €15.00 per hour. Actual hours worked were 600; the standard hours allowed for actual output were 550. What is the direct labour rate variance?