
Concept explainers
Concept Introduction:
Labor Cost Variance: The difference between the
- Actual man hour rate varies from the standard man hour rate and/or
- Actual efficiency of labor employed varies from the standard efficiency.
Therefore, Labor Cost Variance is the sum of (i) Labor Rate Variance and (ii) Labor Efficiency Variance.
Labor Rate Variance:
The difference between the actual rate of per man hour and the standard rate of per man hour is the Labor Price Variance.
Labor Efficiency Variance:
The difference between actual man hours and standard man hours is the Labor Efficiency Variance.
The following formulas are used to calculate Labor Cost Variance:
Labor Cost Variance (LCV) = Labor Rate Variance (LRV) + Labor efficiency variance (LEV)
Also, LCV= Standard Cost −Actual Cost of labor
Labor Rate Variance = Standard labor cost for actual hours- Actual labor cost
Labor Efficiency Variance = Standard cost of standard man hours required for actual production units- Standard cost of actual man hours worked.
Labor Cost Variance gives a view of deviations from the set standards which can be either favorable or unfavorable.
Direct Labour rate and Efficiency Variance

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Chapter 23 Solutions
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