Direct labour efficiency variance
Direct labour efficiency variance measures whether workers used more or fewer hours than the standard allows for actual output: (standard hours for actual output − actual hours) × standard rate.
FrameworkStandard costing and variance analysis
See it move
The standard allows 1,000 hours for the output actually produced, valued at €12 an hour, or €12,000. Workers actually took 1,150 hours, still valued at the standard €12 rate, coming to €13,800. The efficiency variance, (1,000 − 1,150) × €12, is €1,800 adverse — 150 hours of lost time, with the wage rate held constant.
The formula
Variables
- standard hours allowed for actual output (standard time per unit × units produced) (hours)
- actual hours worked by direct labour during the period (hours)
- standard rate per hour (€ per hour)
Valued at the standard rate to keep wage-rate differences out of this variance; those fall into the rate variance. Positive result is favourable.
Check yourself
In July, a manufacturer produced 250 units. The standard direct labour allowance is 1.5 hours per unit. Workers actually worked 400 hours and were paid at €11.50 per hour. The standard direct labour rate is €10.00 per hour. What is the direct labour efficiency variance?