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ACCA Applied Skills · Performance Management · Planning and operational variances

Garner Ltd set a standard labour rate of $12.00 per hour. After the budget was agreed, the standard was revised to a realistic $13.50 per hour. During the period 4,000 hours were worked and paid at an actual rate of $13.80 per hour. What is the operational labour rate variance?

The operational labour rate variance is $1,200 adverse. The 4,000 hours should cost $54,000 at the revised standard rate of $13.50, but actually cost $55,200 at $13.80. The $6,000 planning element is excluded because it arises from the standard revision.

  1. A$1,200 adverseCorrect
  2. B$1,200 favourable
  3. C$6,000 adverse
  4. D$7,200 adverse

Explanation

Operational rate variance compares the revised standard cost of hours worked with the actual cost: 4,000 × $13.50 = $54,000 against 4,000 × $13.80 = $55,200, giving $1,200 adverse. $6,000 adverse is the planning rate variance (4,000 × $1.50). $7,200 adverse is the total rate variance against the original standard.

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