Labour Efficiency Variance Formula

Labour Efficiency Variance formula

Labour efficiency variance shows the efficiency of the labour i.e. how efficiently labour has worked on a product. Labour efficiency measure in term of standard rate. If actual Hours are more than expected hours than, it would result in unfavorable variance, otherwise it would be favorable variance.

Actual > Standard hour = unfavorable Labour Variance

Actual Hours < Standard hour = Favorable Labour Variance

Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

Unit produced = 500

Standard Labour hour rate is= $ 5

Labour hour needed per unit = 3

Actual hour taken was 1600 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 500 x 3 = 1500 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (1500-1600) x 5

=(500) unfavorable