Labour Rate of Pay or Wage Rate Variance – meaning and formula.

Labour Rate of Pay or Wage Rate Variance - meaning and formula.
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Labour Rate of Pay or Wage Rate Variance – It is that part of labour cost variance which arises due to a change in specified wage rate. Labour rate variance arises due to

  • change in basic wage rate or piece-work rate,
  • employing persons of different grades then specified,
  • payment of more overtime than fixed earlier, (iv) new workers being paid different rates than the standard rates, and
  • different rates being paid to workers employed for seasonal work or excessive work load.

The wage rates are determined by demand and supply conditions of labour conditions in labour market, wage board awards, etc. So, wage rate variance is generally uncontrollable except if it arises due to the development of wrong grade of labour for which production foreman will be responsible.

This variance is calculated by the formula:

Labour Rate of Pay Variance = Actual time (Standard Rate – Actual Rate)

The variance will be favourable if actual rate is less than the standard rate and it will be unfavourable or adverse if actual rate is more than the standard rate.

Author: amidu edson

I am certified accountant with more than 5 years of teaching experience. Currently am teaching auditing and assurance, management accounting and financial accounting for student preparing for professional exams such as ACCA and CPA.

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