ACCA Applied Skills · Performance Management · Standard costing
Zeta Co uses standard costing. The standard labour rate is $12 per hour. In May, 5,000 hours were paid at a total cost of $62,000. Of these, 4,800 hours were actually worked and 200 hours were idle. What is the labour rate variance?
The labour rate variance is $2,000 adverse. It is calculated on hours paid: 5,000 hours at the standard $12 gives $60,000, compared with the actual $62,000 paid. Idle time is treated separately, so the paid hours are the correct base.
- A$2,000 adverseCorrect
- B$2,000 favourable
- C$2,400 adverse
- D$400 adverse
Explanation
Rate variance is based on hours paid: 5,000 x $12 = $60,000 standard cost; actual cost $62,000, so $2,000 adverse. Basing it on 4,800 hours worked would give $57,600 vs $62,000 = $4,400 adverse, which wrongly mixes in the idle time cost.
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