Final answer:
The direct labor rate variance is found by taking the actual hours worked times the standard labor rate and the actual labor rate, then comparing the two. It highlights the difference between what was expected (standard) to be paid and what was actually paid for labor.
Step-by-step explanation:
When calculating the direct labor rate variance, take the actual hours worked times the standard labor rate and compare it to the actual hours worked times the actual labor rate.
Example calculation:
Let's say the standard labor rate is $10/hr, and the actual labor rate paid is $12/hr. If 100 hours were worked, the standard cost would be 100 hours * $10/hr = $1,000. The actual cost would be 100 hours * $12/hr = $1,200.
The direct labor rate variance would be the actual cost minus the standard cost, which is $1,200 - $1,000 = $200 unfavorable, because the actual cost is more than the standard projected cost.
The direct labor rate variance is calculated by multiplying the actual hours worked by the standard labor rate and comparing it to the actual hours worked multiplied by the actual labor rate.
For example, if the actual hours worked is 20 and the standard labor rate is $10/hr, while the actual labor rate is $12/hr, the direct labor rate variance would be ($10/hr * 20) - ($12/hr * 20) = $200 - $240 = -$40.
So, in this case, the direct labor rate variance would be -$40.