Calculate Standard Costing variances for labor or overhead
$
The actual hourly wage or price per unit paid.
$
The budgeted or expected hourly wage or price.
The total actual hours worked or units purchased.
Total Rate Variance
$0.00
function calculateVariance() {
// 1. Get input values using var
var actualRateInput = document.getElementById('actualRate');
var standardRateInput = document.getElementById('standardRate');
var actualHoursInput = document.getElementById('actualHours');
var resultContainer = document.getElementById('result-container');
var varianceResultDisplay = document.getElementById('varianceResult');
var varianceStatusDisplay = document.getElementById('varianceStatus');
var explanationText = document.getElementById('explanationText');
// 2. Parse values
var AR = parseFloat(actualRateInput.value);
var SR = parseFloat(standardRateInput.value);
var AH = parseFloat(actualHoursInput.value);
// 3. Validation
if (isNaN(AR) || isNaN(SR) || isNaN(AH)) {
alert("Please enter valid numerical values for all fields.");
return;
}
if (AH < 0 || AR < 0 || SR Standard (Spent more = Unfavorable)
// Negative result means Actual 0;
var isZero = varianceValue === 0;
// 6. Formatting
// We display the absolute value for the monetary figure
var absVariance = Math.abs(varianceValue);
var formattedVariance = absVariance.toLocaleString('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2,
maximumFractionDigits: 2
});
// 7. Update UI
resultContainer.style.display = "block";
varianceResultDisplay.innerHTML = formattedVariance;
if (isZero) {
varianceStatusDisplay.className = "variance-status";
varianceStatusDisplay.style.backgroundColor = "#e2e6ea";
varianceStatusDisplay.style.color = "#666";
varianceStatusDisplay.innerText = "No Variance";
explanationText.innerHTML = "The actual rate matched the standard rate exactly.";
} else if (isUnfavorable) {
varianceStatusDisplay.className = "variance-status status-unfavorable";
varianceStatusDisplay.innerText = "Unfavorable (U)";
explanationText.innerHTML = "You paid $" + (AR – SR).toFixed(2) + " more per hour/unit than budgeted. Since actual costs were higher than standard costs, this variance reduces profit.";
} else {
// Favorable
varianceStatusDisplay.className = "variance-status status-favorable";
varianceStatusDisplay.innerText = "Favorable (F)";
explanationText.innerHTML = "You paid $" + (SR – AR).toFixed(2) + " less per hour/unit than budgeted. Since actual costs were lower than standard costs, this variance improves profit.";
}
}
Understanding Rate Variance
In management accounting and standard costing, Rate Variance measures the difference between the actual price paid for a resource (usually direct labor) and the standard price that was expected to be paid, multiplied by the actual quantity utilized.
It is a crucial metric for cost controllers, production managers, and accountants to understand if the company is overpaying or underpaying for labor hours compared to the budget. While commonly associated with Labor Rate Variance, the same logic applies to variable overhead spending.
The Rate Variance Formula
The calculation identifies the specific financial impact caused solely by the difference in rates, excluding the impact of efficiency (how many hours were worked).
Rate Variance = (Actual Rate – Standard Rate) × Actual Hours
Where:
Actual Rate (AR): The actual hourly wage or cost per unit paid during the period.
Standard Rate (SR): The budgeted or standard cost per hour/unit established at the beginning of the period.
Actual Hours (AH): The actual number of direct labor hours worked or units of input consumed.
Interpreting the Results
Variance analysis results are binary: they are either Favorable (F) or Unfavorable (U).
Unfavorable Variance (U)
An unfavorable variance occurs when the Actual Rate > Standard Rate. This means the company paid more for labor than anticipated. Common causes include:
Overtime premiums paid to meet tight deadlines.
Using more experienced (and expensive) staff for tasks budgeted for junior staff.
Unexpected wage increases or union negotiations.
Favorable Variance (F)
A favorable variance occurs when the Actual Rate < Standard Rate. This means the company paid less for labor than anticipated. While generally good for the bottom line, extreme favorable variances should be investigated because:
You might be using under-qualified staff, which could lead to quality issues.
The standard rate might have been set too high initially.
Employee morale might suffer if wages are significantly below market standards.
Example Calculation
Imagine a manufacturing plant budgets their technicians' standard rate at $30.00 per hour. During the month, they worked 1,000 hours, but due to a shortage of junior staff, senior technicians were used at a rate of $35.00 per hour.
This indicates that $5,000 of the total cost overrun was specifically due to the higher wage rate, regardless of how efficiently the workers performed.
Why is Rate Variance Important?
Isolating rate variance helps management pinpoint accountability. If there is a large cost overrun, the Rate Variance tells you if it was the HR/Hiring manager's responsibility (wage rates) or the Production Manager's responsibility (Efficiency Variance – usage of hours). Without separating these, it is impossible to implement effective corrective actions.