Final answer:
The labor rate variance is calculated by multiplying the standard labor hours for the units produced by the standard rate per hour. Option A is correct.
Step-by-step explanation:
Calculating the labor rate variance involves a fundamental formula: multiplying the standard labor hours allocated for the units produced by the predetermined standard rate per hour. This mathematical relationship is a core principle in variance analysis within cost accounting. The standard labor hours represent the anticipated time required to complete a specific task or produce a unit, and the standard rate per hour signifies the expected cost of labor per hour. By multiplying these two components, the formula provides a quantitative measure of the variance between the actual labor costs incurred and the budgeted or standard costs.
This variance analysis is integral to performance evaluation and cost control within an organization. A favorable labor rate variance indicates that the actual hourly wage paid is lower than the standard rate, potentially reflecting cost savings. Conversely, an unfavorable variance suggests that the actual hourly wage exceeds the predetermined standard, signaling potential cost overruns. This analytical approach facilitates a detailed understanding of how labor costs contribute to overall budgetary performance, enabling businesses to make informed decisions, refine budgetary forecasts, and enhance operational efficiency based on real-time insights derived from the comparison of actual and standard labor rates.