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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › reason of adverse labor cost variance
Hi john sir,
which of the following might explain an adverse direct labor cost variance?
1. Working overtime
2. idle time
3. poor productivity
John sir working overtime and poor productivity might cause adverse labour cost variance. i m not sure about idle time. plz a little bit explain.
Idle time is hours for which you are paying, but during which they are not working.
So…..even if they worked exactly the right number of hours, if there is idle time you will be paying them for extra hours and so there will be a cost variance.
Thanx for reply.. but couldn’t understand, so is it cause labour adverse cost variance?
I think you may be confusing cost variance with rate of pay variance.
The cost variance is the total labour variance.
Just suppose that I expected to pay for 1000 hours and expected them to work for 1000 hours. I pay them $10 per hour.
So I expect the total cost to be $10,000.
Suppose that they actually did work for 1000 hours, but I paid them for 1200 hours (because they spent 200 hours doing nothing – i.e. idle time). Even if I pay them the right wage of $10 per hour, I would not be spending $12,000.
So, there is an adverse labour cost variance – we have spent $2,000 more than we should have done.
Thanx jhon sir, now i got it. exactly i was confusing it with rate variance. ( Labour rate variance is not caused by idle time but labour total cost variance might be caused by idle time) Am i right john sir now?
That’s is correct 🙂
Thanx sir
You are welcome 🙂