Labor variance calculator: split total labour variance into efficiency and rate variances, labelled favourable or unfavourable, with cost per unit.
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Short answer
Labour efficiency variance is the standard rate times actual hours minus standard hours allowed; labour rate variance is actual rate minus standard rate, times actual hours. At 12,400 units, 0.35 standard hours each and 4,612 actual hours at $32.80 against a $31.50 standard, efficiency is $8,568 unfavourable, rate is $5,996 unfavourable, and the total labour variance is $14,564 unfavourable.
Labour cost missing its standard is one number, but it is always two problems: you used the wrong number of hours, or you paid the wrong price for them. The efficiency variance isolates the hours, the rate variance isolates the price, and only one of them belongs to the supervisor.
Enter output, standard hours per unit, actual hours and both rates. The calculator splits the total labour variance into its efficiency and rate halves, labels each favourable or unfavourable, and shows what each costs per unit produced.
Your numbers
Result
Total labour variance
$14,564 U
10.7% above standard labour cost of $136,710
Standard hours allowed4,340.0 h
Actual hours per unit0.372 h
Labour efficiency (standard ÷ actual hours)94.1%
Efficiency variance$8,568 U
Rate variance$5,996 U
Actual labour cost$151,274
F = favourable, actual below standard. U = unfavourable, actual above standard.
Variance
Amount
Per unit
% of standard
F/U
Efficiency (hours)
$8,568
$0.69
6.3%
U
Rate (price)
$5,996
$0.48
4.4%
U
Total labour
$14,564
$1.17
10.7%
U
standard hours allowed = 12,400 units × 0.350 h = 4,340.0 h
efficiency = (4,612.0 − 4,340.0) h × $31.50 = $8,568 U
rate = ($32.80 − $31.50) × 4,612.0 h = $5,996 U
total = $151,274 actual − $136,710 standard = $14,564 U
$14,564 unfavourable is 10.7% of standard labour cost. A gap this size for more than two periods means the routing or the standard rate is wrong, and every rolled cost and quote built on it is wrong by the same margin.
Everything is computed in your browser. Nothing you type is sent anywhere or stored.
The formula
Efficiency variance = (Actual hours − Standard hours allowed) × Standard rate; Rate variance = (Actual rate − Standard rate) × Actual hours
Actual hours
Direct hours actually charged to the job or period. Exclude indirect and idle time unless your standard includes it.
Standard hours allowed
Standard hours per unit × good units produced. It flexes with output, which is what makes the variance fair.
Standard rate
The loaded hourly rate in the standard cost: wage plus payroll tax, benefits and paid absence.
Actual rate
Actual labour cost ÷ actual hours. Overtime premium and shift differentials land here.
The two variances add exactly to the total: (AH − SH) × SR + (AR − SR) × AH = AH × AR − SH × SR. There is no third residual term, so if your report shows one, the hours or the rate basis differ between the two halves. Positive means actual above standard, which is unfavourable.
Worked example
Good units produced
12,400
Standard hours per unit
0.35
Actual hours worked
4,612
Standard rate
$31.50
Actual rate
$32.80
Result
Efficiency $8,568 U · Rate $5,996 U · Total $14,564 U
Standard hours allowed are 12,400 × 0.35 = 4,340. You used 4,612, so 272 extra hours at the $31.50 standard rate is $8,568 unfavourable efficiency variance. The rate came in $1.30 high across all 4,612 hours, giving $5,996 unfavourable rate variance. Total labour cost was $151,274 against $136,710 allowed — $14,564 unfavourable, or 10.7% of standard labour cost.
Which variance belongs to whom
Splitting the total is not an accounting nicety. The two halves have different owners, different causes and different fixes, and holding one person accountable for both is how variance meetings turn into arguments.
Variance
Formula
Usually owned by
Typical cause
Efficiency (hours)
(actual hours − standard hours allowed) × standard rate
Production supervisor
Downtime, rework, poor material, short runs, an unrealistic routing.
Rate (price)
(actual rate − standard rate) × actual hours
HR and scheduling
Overtime premium, shift differential, a senior operator on a junior job, a pay award not yet in the standard.
Total labour
actual labour cost − standard cost allowed
Plant manager
The sum of the two. Report it, but never explain it without the split.
A favourable efficiency variance can be the expensive one
Beating the standard hours looks like a win and often is not. The four usual explanations are worth checking in order.
1.Overproduction. Hours look efficient because you ran long batches. The saving turns into inventory, and the carrying cost outlives the variance.
2.Quality shortcuts. Speed came from skipped checks. The cost lands in scrap, rework or warranty a month later, in a different account.
3.A loose routing. If the standard hours were set on an old process or a bad time study, everybody beats it forever and the variance measures nothing.
4.Genuine improvement. Real, repeatable, and worth updating the routing for — which is exactly what makes it stop showing up as favourable.
Where labour variances usually come from
In practice, most unfavourable efficiency variance is not people working slowly. It is people waiting: for material, for a changeover, for a machine that stopped. Before rewriting the routing, price the waiting with the downtime cost calculator and compare it to the variance. If they are the same size, you have found your cause.
Rate variance has a shorter list of causes and an easier fix. Sustained overtime, a pay award that never reached the item master, or the wrong labour grade booked to the job. Only the first is an operating decision; the other two are data problems.
Reading the variance as a percentage
Currency amounts scale with volume, so the percentage of standard labour cost is what makes months comparable. Under 2% either way is noise. Above 5% one way for three months running means the standard is wrong, not the shop floor — and until it is fixed, every rolled cost and every quote built on it is wrong by the same margin.
Getting there needs actual hours by work centre, good output by item and the current standard from the routing, all for the same period. With ERPray you ask for it: "labour efficiency and rate variance by work centre for last month, on good units" — computed from your own time entries and routings, with the query shown so you can check which hours it counted as direct.
Frequently asked questions
How do you calculate labor efficiency variance?
Subtract standard hours allowed from actual hours worked and multiply by the standard hourly rate. Standard hours allowed is standard hours per unit times good units produced. At 4,612 actual hours against 4,340 allowed and a $31.50 standard rate, the efficiency variance is $8,568 unfavourable.
What is the difference between labor efficiency and labor rate variance?
Efficiency variance measures hours: how many you used against how many the output allowed, priced at the standard rate. Rate variance measures price: what you paid per hour against standard, across the hours you actually worked. Together they add exactly to the total labour variance, with no leftover term.
Is a favourable labor variance always good?
No. Favourable efficiency can mean overproduction that turns into inventory, or speed bought by skipping quality checks, or a loose routing everybody beats. Favourable rate can mean junior staff on skilled work, which usually returns as an unfavourable efficiency variance in the same period. Check the cause, not the sign.
Why is the standard rate used in the efficiency variance?
To keep the two variances independent. Pricing the extra hours at the standard rate means the efficiency variance measures only hours, and every effect of the actual rate is confined to the rate variance. If you used the actual rate in both, the two would overlap and double-count part of the gap.
Should overtime premium go in the rate variance?
Yes, unless your standard rate already includes an expected level of overtime. Premium raises the actual rate, so it lands in the rate variance across all hours worked. Some shops instead charge premium to a separate overtime account, which keeps the rate variance clean but needs a stated policy so it is consistent.
What causes a large unfavourable labor efficiency variance?
Usually waiting rather than working: machine downtime, material shortages, long changeovers on short runs, and rework. Then training gaps for new operators, and routings set on a process that has since changed. Price the downtime hours separately first, because that often accounts for most of the gap.
This calculator needs you to find the inputs first. ERPray pulls them from your own ERP account and computes the answer live — with the exact query shown so you can check it.