Unfavorable Labour Efficiency Variance Formula

Unfavorable Labour Efficiency Variance Formula

Unfavorable Labour efficiency variance would result, where actual are more than standard hour. This is not a favorable situation, because labour is taking more hours on work than expected.

Actual Hours > Standard hour = Favorable Labour Variance

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

Example

Project was awarded to produce= 800 units

Labour Standard hour payment rate= $ 8

Labour requirement per unit = 5 Hours

Actual Labour hour spent = 4200 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 800 x 5 = 40000 hours

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

= (4000-200) x 8

=-200 x 8

= -1,600 $ (unfavorable)