Question

What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour?
Use the following data to calculate the variances.

Budgeted costs at actual volume would be $25,344 ($21.12 × 1,200), and the total variance to be explained is $2,536 Unfavorable ($27,880 - $25,344). Be sure to specify whether the variance is favorable or unfavorable.

The following information has been prepared for a home health agency.

	Budget	Actual
Wages Per Hour	$16.00	$17.00
Fixed Hours	320	320
Variable Hours per (RVU)	1.0	1.1
Relative Value Units	1,000	1,200
Total Labor Hours	1,320	1,640
Labor Costs	$21,120	$27,880
Cost Per RVU	$21.12	$23.23

Answer 1

Labour Rate variance = (Standard Rate - Actual Rate) * Actual No. of hours

= ($16- $17) * 1640

=$1,640 Unfavourable

Labour Effeciency Variance = (Standard hours - Actual hours) * Standard Rate

Standard Hours at actual production of 1200 RVU = 320 fixed hours + (1 hour * 1200 RVU) = 1,520 hours

= $1,520 - 1,640) * 16

=  $1,920 Unfavourable

Calculation of budgeted overhead rate per unit :

(Fixed hours * Standard Rate per hour) / Budgeted no. of units

=(320 * $16) / 1000 = $5.12

Production Volume Variance = (actual units produced - budgeted production units) x budgeted overhead rate per unit

= (1,200 - 1,000) * $5.12

= $1,024 Favourable

So, $2,536 Unfavourable Variance is explained by :

Labour Rate variance $1,640 Unfavourable

Labour Effeciency Variance $1,920 Unfavourable

Production Volume Variance $1,024 Favourable