Final answer:
When calculating the direct labor rate variance, multiply the actual hours worked by the standard labor rate and compare it to the actual hours worked multiplied by the actual labor rate. This calculation helps businesses monitor labor cost efficiency and budget adherence.
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. To analyze labor costs and efficiency, businesses often look at the variance between these two figures. The labor rate variance helps companies understand how efficiently labor resources are being used and how well they adhere to budgeted costs.
The formula for the labor rate variance is: (Actual Hours Worked × Standard Rate) - (Actual Hours Worked × Actual Rate) For example, if the actual hours worked were 100 and the standard rate was $10/hr, but workers were paid an actual rate of $9/hr, the labor rate variance would be: (100 hours × $10/hr) - (100 hours × $9/hr) = $1000 - $900 = $100 favorable variance.