Question 1 Introduction
The labour rate variance measures the labour cost difference due to the rate paid to employees.
A business has a standard cost of £600 for making 1,000 units of output. The actual cost is £580. Therefore, the total cost variance is £20 adverse.
The materials variance is analysed into the material price variance and the material efficiency variance.
The standard price of materials is £2 per kilo and the standard usage is 1,000 kilos. The actual cost of the materials is £2.50 per kilo and the actual usage is 1,200 kilos. Therefore the material price variance is £600 adverse.
The labour efficiency variance can be expressed as: actual rate x (standard hours - actual hours).
The labour rate variance measures the labour cost difference due to the rate paid to employees.
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