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CMA Final · Strategic Cost Management · Variance Analyses

Standard for a product is 4 labour hours at Rs 90 per hour. For 500 units, 2,100 hours were paid, of which 50 hours were idle, and actual wages paid were Rs 1,95,300. What is the labour rate variance?

The labour rate variance is Rs 6,300 Adverse. It is measured on all 2,100 hours paid, including idle hours: standard cost Rs 1,89,000 against actual wages of Rs 1,95,300. Basing it on hours worked alone would wrongly mix idle time into the rate variance.

  1. ARs 6,300 AdverseCorrect
  2. BRs 10,800 Adverse
  3. CRs 4,500 Adverse
  4. DRs 6,300 Favourable

Explanation

Rate variance is computed on hours paid: standard cost of 2,100 hours = 2,100 x 90 = Rs 1,89,000. Actual wages = Rs 1,95,300, so variance = Rs 6,300 Adverse. Using only the 2,050 hours worked would wrongly give Rs 10,800 Adverse. Rs 4,500 Adverse is the idle time variance (50 x 90), which equals the efficiency variance here.

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