Among the various aspects that come under accounting, labor efficiency variance is one of them. Labor is a vital resource for a company and takes up a large portion of the production costs. So companies need to find out if the labor costs are justified or not. You should know how to derive this information based on certain calculations. You need to take our accounting help from tutorteddy.com to master all these topics confidently.
The number of hours that a labor resource puts in actual production may not match with what was attributed to it while making budgets for costs. Labor efficiency variance is a calculation of the difference between the number of hours of actual labor required per unit and the number of hours which was projected to be required per unit. This calculation is estimated on the basis of the standard wage rate. This difference can occur due to unforeseen situations because of which labor resource could not be used fully. This calculation is done on the basis of a formula which is -
The results of this calculation should be favorable for the company. This happens when the actual labor costs are lower than the estimated labor costs. Otherwise the results are considered to be negative and not viable for the company.
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