Performance Management · Standard costing

Labour Rate, Efficiency and Idle Time Variances in ACCA Performance Management

Updated 11 October 2026 · Fact-checked

Labour variances compare actual labour cost with standard cost. The rate variance uses paid hours and the pay rate. The idle time variance values hours paid but not worked at the standard rate. The efficiency variance values worked hours against the hours allowed for actual output, also at the standard rate.

Understand Labour Rate, Efficiency and Idle Time Variances

A standard cost card sets how many labour hours one unit should take and what each hour should cost. At the end of a period you compare this with what actually happened. The gap is the total labour variance. It is split so that managers can see why the gap arose.

There are two main causes. You may have paid a different rate per hour from the standard. That is the labour rate variance. Or you may have used more or fewer hours than you should have for the output achieved. That is the labour efficiency variance. Rate is a price effect. Efficiency is a quantity effect.

Sometimes workers are paid for hours when they do no work. Examples are machine breakdown or waiting for materials. These are idle hours. When idle time exists, you split hours into hours paid and hours worked. The idle time variance is always adverse, because you pay for time that produces nothing. Efficiency is then judged on hours worked only, so idle time is not counted twice.

Interpretation matters as much as calculation. A favourable rate variance may come from using cheaper, less skilled staff. That could cause an adverse efficiency variance through slower work or more errors. A rise in the pay rate through overtime or a pay award can cause an adverse rate variance. Poor materials or machine faults can cause both adverse efficiency and idle time. Always link variances and ask who controls the cause.

Key rules to remember

Total labour variance: (Standard hours for actual output × standard rate) − (actual hours paid × actual rate); Positive is favourable, negative is adverse. It equals rate + idle time + efficiency.
Labour rate variance: (Actual hours paid × standard rate) − actual cost of hours paid; Use hours paid, not hours worked, when idle time exists.
Labour idle time variance: Idle hours × standard rate; Always adverse. Idle hours = hours paid − hours worked.
Labour efficiency variance: (Standard hours for actual output − actual hours worked) × standard rate; Standard hours for actual output = actual units × standard hours per unit.
Check: Rate + idle time + efficiency = total labour variance; If there is no idle time, hours paid equal hours worked and the idle variance is zero.

How to solve Labour Rate, Efficiency and Idle Time Variances questions

Use the same layout every time. It works with or without idle time and keeps signs under control.

1Write down the actual output and the standard hours per unit. Multiply to get the standard hours for actual output.
2Write down the hours paid, hours worked and the actual cost of hours paid. If no idle time is mentioned, hours paid equal hours worked.
3Calculate the rate variance: hours paid × standard rate, less the actual cost. Label it F or A.
4Calculate the idle time variance: (hours paid − hours worked) × standard rate. Label it A.
5Calculate the efficiency variance: (standard hours − hours worked) × standard rate. Label it F if fewer hours were worked than allowed.
6Add the three variances and check they equal the total labour variance calculated separately.
7State the likely cause and any link between the variances, if the question asks for comment.

Quickest way: The three-line hours and cost grid

When to use it: Use this for Section A and Section B objective questions where you need one variance quickly.

Write three figures in a row: standard hours for actual output, hours worked, hours paid.
Write beneath them the standard cost of each at the standard rate, and the actual cost paid.
Efficiency is the difference between the first two figures. Idle time is the difference between the last two. Rate is the difference between the last figure and the actual cost.
Decide F or A by asking: did we spend less than standard? If yes, favourable.
Match your answer to an option and include the F or A label, as options often differ only by sign.

Common mistakes in Labour Rate, Efficiency and Idle Time Variances

Using hours worked instead of hours paid in the rate variance.
Students copy the efficiency layout and ignore idle time.
Fix: Rate always compares the hours you paid for with their actual cost. Underline hours paid in the question.
Valuing efficiency at the actual rate.
Students assume actual figures should always be used.
Fix: Efficiency and idle time are quantity variances. Value them at the standard rate.
Including idle hours in the efficiency variance.
Students use hours paid for both variances.
Fix: Use hours worked for efficiency. Idle hours go to the idle time variance only.
Showing idle time as favourable or mixing up signs.
Students subtract in the wrong order.
Fix: Idle time is always adverse. For others, ask whether actual is lower than standard cost or hours.
Using standard hours per unit instead of for actual output.
Students ignore the actual units produced.
Fix: Multiply actual units by standard hours per unit before comparing.
Explaining each variance in isolation.
Students memorise single causes.
Fix: Look for links: cheaper labour and adverse efficiency, or better skills with higher rates and good efficiency.

Worked examples

Example 1

A company makes 1,000 units. Standard labour is 3 hours per unit at $12 per hour. Actual hours paid and worked were 3,150, and the actual cost was $39,375. Calculate the labour rate, efficiency and total labour variances.

Show the solution

Standard hours for actual output = 1,000 × 3 = 3,000 hours.
Standard cost = 3,000 × $12 = $36,000.
Rate: 3,150 × $12 = $37,800. Less actual cost $39,375 gives $1,575 adverse.
Efficiency: (3,000 − 3,150) × $12 = $1,800 adverse.
Total: $36,000 − $39,375 = $3,375 adverse.
Check: $1,575 + $1,800 = $3,375.

Answer: Rate $1,575 adverse; efficiency $1,800 adverse; total $3,375 adverse.

Example 2

A firm produces 800 units. Standard labour is 2.5 hours per unit at $8 per hour. Workers were paid for 2,100 hours at a total cost of $17,325. Of these, 150 hours were idle because of a machine breakdown. Calculate the rate, idle time, efficiency and total labour variances.

Show the solution

Standard hours = 800 × 2.5 = 2,000 hours. Standard cost = 2,000 × $8 = $16,000.
Hours worked = 2,100 − 150 = 1,950 hours.
Rate: 2,100 × $8 = $16,800. Less actual $17,325 gives $525 adverse.
Idle time: 150 × $8 = $1,200 adverse.
Efficiency: (2,000 − 1,950) × $8 = $400 favourable.
Total: $16,000 − $17,325 = $1,325 adverse.
Check: $525 A + $1,200 A − $400 F = $1,325 A.

Answer: Rate $525 adverse; idle time $1,200 adverse; efficiency $400 favourable; total $1,325 adverse.

Exam tips

Check whether the question mentions hours paid and hours worked separately. If so, expect an idle time variance.
In objective questions, wrong options often have the right number with the wrong F or A. Check the sign last.
In Section C, show the standard hours for actual output as a working line so marks are available even if later figures slip.
When asked to comment, give a cause, who is responsible, and any link to another variance such as materials quality or staff grade.
Always run the total check. It catches most arithmetic and sign errors in under a minute.

Practice questions from Standard costing

Labour Rate, Efficiency and Idle Time Variances in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Labour Rate, Efficiency and Idle Time Variances: frequently asked questions

What is the difference between labour rate and efficiency variance?

The rate variance is a price effect. It shows the effect of paying a different hourly rate from standard. The efficiency variance is a quantity effect. It shows whether the hours worked were more or fewer than allowed for actual output, valued at the standard rate.

How do you calculate the labour idle time variance?

Subtract hours worked from hours paid to get idle hours. Multiply them by the standard rate per hour. The result is always adverse because the business pays for time that produces nothing.

Do I use actual or standard rate for the efficiency variance?

Use the standard rate. Efficiency measures hours, so the price must be held constant. The effect of a different actual price is already in the rate variance.

Can a favourable rate variance cause an adverse efficiency variance?

Yes. If a business uses cheaper, less skilled workers, the hourly rate is lower than standard. Those workers may take longer or make more errors, so efficiency can be adverse. Comment on this link in written answers.