Labour variances

Question 1

What is labour variance?

Answer 1

It is the difference between the standard cost of labour for the actual level of production and the actual cost of labour used.

Question 2

Overall labour variance =

Answer 2

(standard hours x standard rate) -

actual hours x actual rate

Question 3

What is labour rate sub-variance caused by?

Answer 3

It is caused by the actual hourly rate paid to employees being different from the budgeted hourly rate

Question 4

Labour rate sub-variance =

Answer 4

Actual labour hours x

standard hourly rate - Actual hourly rate

Question 5

What is the labour efficiency sub-variance caused by?

Answer 5

It is caused by the standard number of hours for the actual level of production being different from the actual number of hours

Question 6

Labour efficiency sub-variance =

Answer 6

standard rate x

standard hours - actual hours

Question 7

Overall labour variance 2 =

Answer 7

Labour rate sub-variance + labour efficiency sub-

variance