Labour Efficiency Variance or Hour Variance

In orde to understand the effect of variation in number of hours planned and number of hours actually used to produce the products, the efficiency or hour variance is used.

Formula

Efficiency variance = (Actual hours - Standard hours) x Standard rate

Example

Following data is available for Alpha industry:

Standard cost

Labour 20,000 hours @ $2.66 per hour = $53,200/-

Actual cost 

Labour 19,866 hours @ $2.84 per hour = 56,420/-

Required

Calculate efficiency or hour variance?

Solution/ Answer

Efficiency variance = (Actual hours - Standard hours) x Standard rate = (19,866 - 20,000) x 2.66 = $356.44 Favourable

Related Posts: Labour Efficiency Variance MCQS

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