Employees were paid $39,600 for 2,200 hours. Of these paid hours, 2,090 were worked and 110 were idle time. The standard labour rate is $17.50 per hour. What is the labour rate variance?

Correct answer: B) $1,100 adverse

Explanation

The rate variance is based on hours paid, including idle time. Standard cost of hours paid = 2,200 x 17.50 = $38,500. Actual cost = $39,600. Variance = 38,500 - 39,600 = $1,100 adverse, because the actual rate ($39,600 / 2,200 = $18.00) was more than standard. Using hours worked instead of hours paid (39,600 - 2,090 x 17.50 = $3,025) wrongly mixes the idle time into the rate variance.