Labour Efficiency or Labour Time Variance – meaning.

Key points from ISA 200 (Overall objective of independent auditor and the conduct of an audit in accordance with ISAs).
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Labour Efficiency or Labour Time Variance It is that part of labour cost variance which arises due to the difference between standard labour hours specified and the actual labour hours spent. It helps in controlling the efficiency of workers.

The reasons for the labour efficiency variance are:

  • lack of proper supervision,
  • defective machinery and equipment
  • insufficient training and incorrect instructions
  • increase in labour turnover
  • bad working Conditions
  • discontentment along workers due to unsatisfactory personnel relations, and
  • use of non-standard material requiring more time to complete work.

Labour efficiency variance is calculated as Labour efficiency variance = Standard Wage Rate (Standard Time–Actual Time). If the actual time taken for doing work is more than the specified standard time, the variance will be unfavourable. On the other hand, if the actual time taken for a job is less than the standard time, the variance will be favourable.

Author: amidu edson

I am certified accountant with more than 5 years of teaching experience. Currently am teaching auditing and assurance, management accounting and financial accounting for student preparing for professional exams such as ACCA and CPA.

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