The human resources manager of Hodgson Industrial Design estimates that the average labor rate for the coming year for Hodgson”s production staff will be $25/hour. This estimate is based on a standard mix of personnel at different pay rates, as well as a reasonable proportion of overtime hours worked.
During the first month of the new year, Hodgson has difficulty hiring a sufficient number of new employees, and so must have its higher paid existing staff work overtime to complete a number of jobs. The result is an actual labor rate of $30/hour. Hodgson”s production staff worked 10,000 hours during the month. Its labor rate variance for the month is:
($30/hr Actual rate $25/hour Standard rate) x 10,000 hours = $50,000 Labor rate variance