How is the direct labor rate variance determined?

The determination of the direct labor rate variance involves comparing the actual labor rate paid to the standard labor rate that was anticipated. The correct formula is focused on the difference between these rates and the actual hours worked.

By using the actual hours multiplied by the difference between the actual rate and the standard rate, this calculation shows how much the labor costs deviated from what was expected based on the standard. If the actual rate is higher than the standard rate, this results in a negative variance, indicating that labor costs exceeded expectations. Conversely, if the actual rate is lower than the standard rate, the variance is positive, indicating cost savings.

This method captures the essence of labor cost management, allowing companies to analyze the efficiency of their labor expenditures. The other options relate to different variances, such as efficiency variances or price variances, which are not pertinent to calculating the direct labor rate variance.