Favorable Labour efficiency Variance

Favorable Labour efficiency Variance Example

Favorable Labor efficiency means that actual labor hours are less than expected labour hour and this difference is measured at standard labour hour rate. Mathematically this concept can be expressed as under

Actual Hours < Standard hour = Favorable Labour Variance

 Labour Efficiency Variance = (Standard Hours- Actual Hours) x (Standard Rate)

Example

Number of unit is to be produced of a product = 1000

Labour rate for production (Standard)= $ 9

Standard Labour Hours required for one unit = 5 Hr

Actual hour taken was 4000 Hours

Calculate Labour Efficiency Variance

Solution

Standard Hours = 1000 x 5 = 5000 hours

Labour Efficiency Variance = (Standard hours –Actual Hours) x (Standard Rate)

= (5000-4000) x 9

=1000 hr x $ 9

= 9,000 $ (Favorable)