How is the wage variance calculated?

The wage variance is calculated by determining the difference between the budgeted average wage per hour and the actual average wage per hour, then multiplying that difference by the actual hours worked. This method effectively captures how much the actual wages deviate from the budgeted expectations based on the hours worked, providing insights into labor cost performance.

This calculation emphasizes the focus on wage rates and actual hours, allowing organizations to gauge the financial impact of wage decisions compared to the budget. If the actual wage per hour is higher than the budgeted amount, it will indicate a negative variance, leading to increased costs. Conversely, a lower actual wage compared to the budget will show a favorable variance.

Understanding this allows organizations to identify trends or changes in wage expenses, facilitating better workforce management and financial planning. The rationale behind this approach is to hold departments accountable for wage expenditures, encouraging adherence to budgeted wage rates.