Calculate the variance between actual labor costs and standard labor costs.
The actual amount paid per hour.
The budgeted or expected rate per hour.
Total direct labor hours utilized during the period.
Rate Difference (Per Hour):–
Total Labor Rate Variance:–
Status:–
function calculateLaborVariance() {
// Get input values
var actualRateInput = document.getElementById('actualRate');
var standardRateInput = document.getElementById('standardRate');
var actualHoursInput = document.getElementById('actualHours');
var resultBox = document.getElementById('resultBox');
var ar = parseFloat(actualRateInput.value);
var sr = parseFloat(standardRateInput.value);
var ah = parseFloat(actualHoursInput.value);
// Validation
if (isNaN(ar) || isNaN(sr) || isNaN(ah)) {
alert("Please enter valid numeric values for all fields.");
return;
}
if (ar < 0 || sr < 0 || ah Standard (Spent more money) -> Unfavorable
// Negative result means Actual Favorable
var statusText = "";
var statusClass = "";
// Absolute value for display formatted as currency
var diffDisplayVal = Math.abs(rateDifference).toFixed(2);
var totalDisplayVal = Math.abs(totalVariance).toFixed(2);
if (totalVariance > 0) {
statusText = "UNFAVORABLE";
statusClass = "variance-unfavorable";
document.getElementById('totalVarianceDisplay').className = "result-value variance-unfavorable";
document.getElementById('rateDiffDisplay').innerText = "+$" + diffDisplayVal + " (Over Standard)";
} else if (totalVariance < 0) {
statusText = "FAVORABLE";
statusClass = "variance-favorable";
document.getElementById('totalVarianceDisplay').className = "result-value variance-favorable";
document.getElementById('rateDiffDisplay').innerText = "-$" + diffDisplayVal + " (Under Standard)";
} else {
statusText = "NO VARIANCE";
statusClass = "result-value";
document.getElementById('totalVarianceDisplay').className = "result-value";
document.getElementById('rateDiffDisplay').innerText = "$0.00";
}
// Update DOM
document.getElementById('totalVarianceDisplay').innerText = "$" + totalDisplayVal;
var statusElement = document.getElementById('statusDisplay');
statusElement.innerText = statusText;
statusElement.className = "result-value " + statusClass;
// Show results
resultBox.style.display = "block";
}
Understanding Direct Labor Rate Variance
The Direct Labor Rate Variance (sometimes called the Labor Price Variance) is a crucial metric in standard cost accounting. It measures the difference between the actual cost of labor incurred and the standard cost that should have been paid for the actual number of hours worked.
This variance isolates the spending efficiency regarding hourly wages. It answers the specific question: "Did we pay more or less per hour for our labor force than we planned?"
Formula: (Actual Rate – Standard Rate) × Actual Hours Worked
How to Interpret the Results
Understanding whether a variance is favorable or unfavorable is key to financial analysis:
Favorable Variance (Negative Result): This occurs when the Actual Rate is lower than the Standard Rate. It means the company paid less for labor than anticipated, resulting in cost savings.
Unfavorable Variance (Positive Result): This occurs when the Actual Rate is higher than the Standard Rate. It means the company paid a premium for labor compared to the budget.
Common Causes of Labor Rate Variance
Variance Type
Potential Causes
Unfavorable (Costs higher than expected)
Excessive overtime paid at premium rates (1.5x or 2x).
Assigning highly skilled (expensive) workers to low-skill tasks.
Unexpected wage increases or union contract adjustments.
Emergency hiring of temporary staff at higher rates.
Favorable (Costs lower than expected)
Assigning lower-skilled (cheaper) workers to tasks budgeted for higher tiers.
Reduction in overtime hours.
Hiring new employees at the bottom of the pay scale.
Example Calculation
Consider a manufacturing plant that budgets a standard labor rate of $20.00 per hour. Due to a rush order, the manager approves overtime, raising the average actual hourly rate to $22.50 for the week. The team worked 1,000 hours.
This indicates that the company spent $2,500 more than planned strictly due to the higher hourly rate, regardless of how efficiently the time was used.
Why is this Important?
Tracking Direct Labor Rate Variance allows management to control production costs effectively. If variances are consistently unfavorable, it may trigger a review of hiring practices, overtime policies, or a revision of the standard costs to reflect current market rates.