What is direct labor cost variances?

The total direct labor cost variance is the difference between the actual labor cost in producing units in the period and the standard labor cost of producing those units.
Direct labor cost variance is calculated as follows:
The standard labor cost of actual production    X
The actual labor cost of actual production      (X)
Direct labor cost variance                           X
The standard labor cost of actual production = actual units produced x standard hours per unit x standard rate per hour

The actual labor cost of actual production = actual units produced x actual hours per unit x actual rate per hour 



The variance is adverse (A) if the actual cost is higher than the standard cost, and favorable (F) if the actual cost is less than the standard cost. 
The direct labor total variance can be analyzed into rate variance and efficiency variances.
A rate variance measures the difference between the actual wage rate paid per labor hour and the rate that should have been paid (standard rate of pay).
An efficiency variance (or productivity variance) measures the difference between the time taken to make the production output and the time that should have been taken (the standard time)

2 thoughts on “What is direct labor cost variances?”

  1. Pingback: What Is Meant By Variance? - ACCA ONLINE ACCOUNTING TEACHER

  2. Pingback: Standard costing and variance analysis revision question (NBAA, B5,NOV 2018)

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