Calculate a direct-labour efficiency variance
Compare actual labour hours with the hours allowed for actual output and value the difference at the standard rate.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.2 teaches standard costing, the listed material, labour, fixed-overhead and sales variances, their causes and relationships, and evidence-based business decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use Topic 2.1–2.2 cost behaviour, contribution and absorption-costing ideas. In each question, identify the period, actual output, budget and standard before calculating a variance.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
How do you calculate standard hours allowed?
What you will learn
- Calculate standard hours allowed
- Apply the labour-efficiency formula
- Explain why hours and productivity require context
Value hours at the standard rate
Standard hours allowed = standard hours per unit × actual output. Labour-efficiency variance = (standard hours allowed − actual hours) × standard rate. Fewer actual hours than allowed are favourable as a cost measure; extra hours are adverse.
The standard rate is used so the variance isolates hours. The rate variance separately measures the effect of paying a different rate for actual hours.
Labour-efficiency variance = (SH allowed − AH) × SR
Efficiency is not just speed
An adverse result may follow from breakdowns, training, material defects, changed product mix, low demand or a standard that is no longer realistic. A favourable result may reflect reduced idle time, but could also signal rushed work, safety risks or deferred maintenance.
Check completed output, rework, defect rates, safety and downtime before acting. If there are different grades of work, compare like with like and avoid attributing an hours difference to staff without evidence.
Pause and explain
Allowed hours are 2,100, actual hours 2,050 and SR is $20/hour. What is the variance?
Worked example
The standard is 1.5 hours per unit. Actual output is 1,200 units and labour used is 1,850 hours. Standard rate is $16/hour. Calculate the efficiency variance.
Show the worked solution
- Allowed hours = 1.5 × 1,200 = 1,800.
- Actual hours exceed allowance by 50.
- 50 × $16 = $800 extra cost, so the variance is adverse.
Answer $800 adverse labour-efficiency variance.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Standard is 0.75 hours per unit. Output is 2,400; AH is 1,900; SR is $18/hour. Calculate the efficiency variance.
Give me a hint
Calculate the hours allowed before valuing the difference.
Compare my reasoning
- Allowed hours = 0.75 × 2,400 = 1,800.
- Actual hours exceed allowance by 100.
- 100 × $18 = $1,800 extra cost.
$1,800 adverse.
Look for these in your work
- Allowed hours correct
- Excess hours correct
- Value at standard rate and label adverse
Output is 650 units; standard is 2.2 hours per unit; actual hours are 1,375; SR is $11/hour. Find the variance.
Give me a hint
Compare actual hours with 650 × 2.2.
Compare my reasoning
- Allowed hours = 1,430.
- Actual hours are 55 lower than allowed.
- 55 × $11 = $605 saved.
$605 favourable labour-efficiency variance.
Look for these in your work
- Allowed hours correct
- 55-hour saving found
- Value and direction correct
A restaurant reports favourable labour efficiency after removing a kitchen safety check. What is the appropriate response?
Give me a hint
A cost saving should not bypass safety and service controls.
Compare my reasoning
- The fewer hours may create a favourable cost variance on the stated basis.
- Check whether the removed check is legally or operationally necessary and whether incident or food-safety risk changed.
- Restore required controls and assess staffing and workflow changes that can protect safety while managing cost.
The variance alone is not an improvement if safety controls were removed. Confirm required standards and investigate safe ways to reduce wasted time.
Look for these in your work
- Financial effect accurately identified
- Safety requirement considered
- Recommendation protects service
Common mistakes
- Using budgeted output
- Valuing the hours difference at the actual rate
- Calling faster work efficient when quality or safety declined
What can you explain now?
Which rate values a labour-efficiency variance?
Compare with the explanation
Standard labour rate
The standard rate keeps the efficiency effect separate from the rate effect.
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Make it stick
State the formula for labour efficiency and identify its standard-hour basis.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.