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Hi,
Can anyone help?
I am looking at the variances section for paper F5 in December.
For example-the labour rate variance is calculated as (Actual Rate-Standard Rate) x Actual Hours.
I have seen example questions were it is calculated as above but in the December 2010 paper-question 1a(iii) it is calculated as (Standard Rate-Actual Rate) x Actual Hours (so the opposite way) this would obviously produce the opposite result of a favourable variance or an adverse variance.
I basically want to know-how do you know which way around it should be????
I am confused. Please help
Thank you
Steve18You can write it either way round, but what determines whether it is favourable or adverse is whether the actual rate is more or less than the standard rate.
If the actual is more than the standard then the cost will be more than it should be, therefore the profit will be less, and therefore it is adverse (and obviously the opposite would be favourable).
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