Consequently, what is the interpretation of the direct labor rate variance?
The direct labor rate variance determines if the rate paid is greater than or less than the standard rate. The direct labor time variance determines if the actual hours used are greater than or less than the standards that should have been used.
Secondly, how do you know if direct labor rate variance is favorable or unfavorable? If the actual rate is higher than the standard rate, the variance is unfavorable since the company paid more than what it expected. If actual rate is lower than standard rate, the variance is favorable.
In this regard, what causes direct labor variance?
Causes of a Labor Rate Variance
Incorrect standards. The labor standard may not reflect recent changes in the rates paid to employees. For example, the standard may not reflect the changes imposed by a new union contract. Pay premiums.
What does a favorable labor rate variance indicate?
A favorable labor efficiency variance indicates better productivity of direct labor during a period. Causes for favorable labor efficiency variance may include: Hiring of more higher skilled labor (this may adversely impact labor rate variance).
