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
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| ACCA | PM | Supporting | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
