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ACCA Applied Skills · Performance Management · Planning and operational variances

Bram Co budgeted to produce 1,000 units using 4 hours of labour per unit at a standard rate of $15 per hour. Because of a new national wage agreement, the revised standard rate is $16 per hour. Actual production was 1,000 units, using 4,200 hours at $16.50 per hour. What is the operational labour rate variance?

The operational labour rate variance is $2,100 adverse. It compares the revised standard rate of $16 with the actual rate of $16.50, a difference of $0.50, multiplied by the 4,200 actual hours worked.

  1. A$2,100 adverseCorrect
  2. B$4,200 adverse
  3. C$2,100 favourable
  4. D$4,000 adverse

Explanation

Operational rate variance = (revised standard rate – actual rate) × actual hours = (16 – 16.50) × 4,200 = $2,100 adverse. Option B uses the original rate of $15 which would combine planning and operational effects ($1.50 × 2,800 is not relevant), and option D is the planning variance on standard hours (1 × 4,000).

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