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CMA Intermediate · Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Sharma Textiles sets a standard of 4 hours per unit at Rs 50 per hour. In March it produced 1,000 units, used 4,200 hours and paid Rs 2,18,400 as wages for the hours worked. What is the labour rate variance?

The labour rate variance is Rs 8,400 Adverse. The actual rate is Rs 52 per hour against a standard of Rs 50, a difference of Rs 2 on 4,200 actual hours paid, so wages cost more than standard.

  1. ARs 8,400 AdverseCorrect
  2. BRs 10,000 Adverse
  3. CRs 8,400 Favourable
  4. DRs 10,000 Favourable

Explanation

Actual rate = 2,18,400/4,200 = Rs 52 per hour. Rate variance = (SR - AR) x AH = (50 - 52) x 4,200 = Rs 8,400 Adverse. Rs 10,000 is the efficiency-type figure and is not the rate variance (it uses the wrong base).

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