Question

Discuss the labor efficeny variance and how it computed and what it tell us in 4-6 sentences.

Answer 1

Labor efficiency variance helps in measuring how to utilize labor according to standards which are established initially. It helps to maintain the quality for direct labor.

Labor Efficiency Variance = ( Actual hours - Standard hours )* standard rate

Or

Labor Efficiency Variance = Standard cost for actual hours - Standard cost

Example

Standard labor rate per hour = $7

Actual labor rate per hour = $7.5

Standard hours = 1200

Actual hours = 1250

Labor Efficiency Variance = ( AH*SR) - ( SH*SR)

= (1250*$7) - (1200*$7)

= $350 (unfavorable)