What is the formula for labor efficiency variance in standard costing?

What is the formula for labor efficiency variance in standard costing?

• A. SH × SR − AH × SR
• B. AH × SR − SH × SR
• C. AH × AR − SH × SR
• D. SH × AR − AH × AR

Answer: (A)

Labor efficiency variance measures how efficiently labor hours were used to produce the actual output, valued at the standard hourly rate. It focuses on hours, not on the rate itself. The calculation uses the standard hours allowed for the actual production (SH), the actual hours worked (AH), and the standard rate (SR). The proper formula is SH × SR − AH × SR, which is the same as (SH − AH) × SR. This shows how many dollars the company would have saved or overspent due to using fewer or more hours than planned, all at the standard rate. If actual hours are more than standard hours, the variance is negative (unfavorable); if actual hours are fewer, it’s positive (favorable). For instance, if SH is 100 hours, AH is 110 hours, and SR is $15, LEV = (100 − 110) × 15 = −$150, unfavorable.

Labor efficiency variance measures how efficiently labor hours were used to produce the actual output, valued at the standard hourly rate. It focuses on hours, not on the rate itself. The calculation uses the standard hours allowed for the actual production (SH), the actual hours worked (AH), and the standard rate (SR). The proper formula is SH × SR − AH × SR, which is the same as (SH − AH) × SR. This shows how many dollars the company would have saved or overspent due to using fewer or more hours than planned, all at the standard rate. If actual hours are more than standard hours, the variance is negative (unfavorable); if actual hours are fewer, it’s positive (favorable). For instance, if SH is 100 hours, AH is 110 hours, and SR is $15, LEV = (100 − 110) × 15 = −$150, unfavorable.