Causes For Labour Cost Variance

Causes For Labour Cost Variance

Direct labour rate variance occur due to the following:

1. Change in basic wage structure or change in piece work rate. This will give rise to the variance till such time the standards are not revised.
2. Employment of workers of grades and rates of pay different from those specified due to shortage of labour of the proper category, or through mistake, or due to the retention of surplus labour.
3. Payment of guaranteed wages to workers who are unable to earn their normal wages if such guaranteed wages form part of direct labour cost.
4. Use of a different method of payment e.g. payment of day – rates while standards are based on piece work method of remuneration.
5. Higher to lower rates paid to casual and temporary workers employed to meet seasonal demands or urgent or special work.
6. New workers not being allowed full normal wage rates.
7. Over time and night shift work in excess of or less than the standard, or where no provision has been made in their standard. This will be applicable only if overtime and shift differential payments form that laid down in the standard.