What causes a favorable labour rate variance and an adverse one?

Intermediate

Answer

A favorable labour rate variance arises from paying below standard—using lower-grade/cheaper workers or below-standard rates. An adverse rate variance arises from overtime premiums, using higher-grade staff, or wage increases above standard. Rate variances often interact with efficiency (cheaper staff may be slower).

Real-world example Using apprentices at lower rates is favorable on rate but may be adverse on efficiency.

Common follow-ups: What drives an adverse rate variance? | How can it link to efficiency?

Flexible Budgets The Budgeting Process Variance Analysis

All 38 Variance Analysis questions