This video shows how to calculate the labor efficiency variance.

The labor efficiency variance is the difference between:

(1) actual labor hours * standard wage rate and

(2) standard labor hours * standard wage rate

This is sometimes abbreviated as: (AH * SR) – (SH * SR)

If the company has used more labor hours than it should have (according to the standard, which is set by management), then the labor efficiency variance is unfavorable. An unfavorable variance could occur if the employees are poorly trained or experience significant amounts of idle time due to machines breaking down or a lack of demand for the company’s products.