Labor Efficiency Variance

 Definition of Labor Efficiency Variance

Labor efficiency variance is the part of labor variance. If we deduct actual working time of worker from standard working time and multiply with standard wage rate, we can calculate labor efficiency variance.This variance is also called labor usage variance.

Formula of Labor Efficiency variance 

= Standard Rate ( Standard Time - Actual Time )

or 

= Standard rate X standard hours allowed - standard rate X actual hours worked

Labor Efficiency Variance Example

If standard hours produced is 1600 and actual hours paid 1500 hours, out of which hours not worked (abnormal idle time) are 50 and standard rate per hour is $ 1.50, calculate labor efficiency variance.

First of all we calculate net actual time utilized for production purpose = 1500 hrs - 50 hrs = 1450 hrs
Labor efficiency variance = $ 1.50 ( 1600 hrs - 1450 hrs ) =  $ 225 ( Favorable )

$ 225 is favorable laborers efficiency variance because we use our labor more efficiently. Our laborers completed our target production before our standard time. They deserve for appreciation.