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Labour efficiency variance

The labour efficiency variance values the difference between standard hours for actual output and actual hours at the standard hourly rate. Under favourable-positive convention, it is (standard hours − actual hours) × standard rate. Check whether actual hours exclude separately analysed idle time. Causes can include learning, material quality, machinery, scheduling and workforce skill, so it should be interpreted with rate, idle-time and other operating measures.

Worked example

Actual output allows 600 standard hours but takes 650 actual productive hours. At $18 per hour, efficiency variance is 50 × $18 = $900 adverse.

Common mistake

Do not compare actual hours with budgeted hours for efficiency; budgeted-hours differences concern capacity or volume.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
ACCA PM Supporting September 2026–June 2027
FIA FMA Direct September 2026–June 2027