This video shows how to calculate the labor rate variance.

The labor rate variance is the difference between:

(1) actual labor hours * actual wage rate and

(2) actual labor hours * standard wage rate

This is sometimes abbreviated as: (AH * AR) – (AH * SR)

If the company spent more than it should have (according to the standard, which is set by management), then the labor rate variance is unfavorable. An unfavorable variance could occur if the company’s employees received a higher wage from working overtime.