Skip to content

ACCA Applied Knowledge · Management Accounting · Variance calculations and analysis

Dunmore Ltd has a standard labour rate of $15 per hour. In May, 2,000 hours were paid for at an actual cost of $31,000, and 100 hours were idle. What is the labour rate variance for May, calculated on all hours paid?

The labour rate variance is $1,000 adverse. All 2,000 hours paid should have cost $30,000 at the standard $15 rate, but the actual cost was $31,000, so the extra $1,000 is an adverse rate variance, unaffected by idle time.

  1. A$1,000 adverseCorrect
  2. B$1,500 adverse
  3. C$1,000 favourable
  4. D$500 adverse

Explanation

Rate variance uses hours paid: 2,000 x $15 = $30,000 standard cost, against actual $31,000, giving $1,000 adverse. Idle time does not change the rate variance because it is calculated on all hours paid. Using only the 1,900 worked hours would give a wrong answer.

Did you get it right without looking?

One question tells you little. A timed set on Variance calculations and analysis shows your real accuracy, how long you take and where you lose marks.

Practise Variance calculations and analysisFree diagnostic mock

More Variance calculations and analysis questions