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Strategic Cost Management · Variance Analyses

Labour Cost Variances: Rate, Efficiency, Idle Time, Mix and Yield

Updated 11 October 2026 · Fact-checked

Labour cost variance is the standard labour cost of actual output minus the actual labour cost. Split it into rate variance (price paid per hour), efficiency variance (hours worked against standard hours) and idle time variance (paid hours not worked). For mixed crews, split efficiency further into mix and yield.

Understand Labour Cost Variances

A labour cost variance compares what labour should have cost for the actual output with what it actually cost. If standard cost is higher, the variance is favourable (F). If actual cost is higher, it is adverse (A).

The total variance hides the cause, so you split it into two questions. Did you pay a different rate per hour? Did you use a different number of hours? Rate answers the first. Efficiency and idle time answer the second.

Hours paid are not always hours worked. If workers are paid for 5,300 hours but work only 5,100, the 200 hours lost are idle time. Idle time is valued at the standard rate and kept separate. Efficiency is then judged only on hours actually worked.

When the job needs different grades of workers (skilled, semi-skilled, unskilled), efficiency splits again. Mix variance shows the effect of using the grades in a different ratio from standard. Yield variance (also called sub-efficiency) shows the effect of total hours being more or less than standard for the output achieved.

The variances always reconcile. Rate + idle time + efficiency equals total labour cost variance. Mix + yield equals efficiency. Use this as your check in every answer.

Key rules to remember

Labour cost variance (LCV)
LCV = (Standard hours for actual output × SR) − (Actual hours paid × AR)
SR = standard rate per hour, AR = actual rate per hour. Positive is favourable, negative is adverse.
Labour rate variance (LRV)
LRV = (SR − AR) × Actual hours paid
Some solutions use hours worked when there is no idle time. With idle time, use hours paid.
Labour efficiency variance (LEV)
LEV = (Standard hours for actual output − Actual hours worked) × SR
Uses hours worked, not hours paid.
Idle time variance
Idle time variance = Idle hours × SR
Always adverse, because idle hours earn no output.
Reconciliation
LCV = LRV + LEV + Idle time variance
Use this to check your answer.
Labour mix variance
Mix variance = (Revised standard hours − Actual hours worked) × SR, for each grade
Revised standard hours = total actual hours worked, shared in the standard ratio of grades.
Labour yield variance
Yield variance = (Standard hours for actual output − Revised standard hours) × SR, for each grade
Overall it equals total hours difference × average standard rate per hour.
Efficiency split
LEV = Mix variance + Yield variance
Holds when idle time is treated separately and hours worked are used.

How to solve Labour Cost Variances questions

Use one fixed layout for every labour variance question. It keeps the working tidy and lets you check the answer.

  1. 1Read the question and note the standard hours per unit, standard rate, actual output, hours paid, idle hours, hours worked and actual rate.
  2. 2Calculate standard hours for actual output: standard hours per unit × actual units produced.
  3. 3Calculate standard cost (standard hours × SR) and actual cost (hours paid × AR). The difference is LCV.
  4. 4Calculate rate variance on hours paid: (SR − AR) × hours paid.
  5. 5Calculate idle time variance: idle hours × SR. Mark it adverse.
  6. 6Calculate efficiency variance on hours worked: (standard hours − hours worked) × SR.
  7. 7If there are several grades, find revised standard hours by sharing total actual hours in the standard ratio. Then find mix and yield for each grade.
  8. 8Add up, check that rate + idle + efficiency equals LCV, and that mix + yield equals efficiency. Label every figure F or A.

Quickest way: Three-line grid for labour variances

When to use it: Use it when the question gives hours paid, hours worked and rates and asks for several variances in a short time.

  1. Write three rows: Standard (SH × SR), Actual hours worked × SR, Actual hours paid × SR, and Actual hours paid × AR.
  2. Differences between consecutive rows give the variances: row 1 minus row 2 is efficiency, row 2 minus row 3 is idle time, row 3 minus row 4 is rate.
  3. Row 1 minus row 4 is LCV. A higher number in an earlier row means favourable.
  4. For mix and yield, add one row: revised standard hours × SR, placed between row 1 and the actual hours worked row. Row 1 minus the new row is yield. The new row minus actual hours worked × SR is mix.

Common mistakes in Labour Cost Variances

  • Using hours worked for the rate variance when idle time exists.

    Students use one hours figure for everything.

    Fix: Wages are paid for all hours paid. Compute rate variance on hours paid, and efficiency on hours worked.

  • Valuing idle time at the actual rate.

    The idle hours feel like an actual cost.

    Fix: Idle time variance is idle hours × standard rate. The rate difference on those hours is already inside the rate variance.

  • Using actual output hours in place of standard hours for actual output.

    Students take the budgeted output or the original standard per unit.

    Fix: Always scale standard hours per unit by the actual units produced before comparing.

  • Getting the sign wrong for mix variance.

    The formula direction (revised standard minus actual) is reversed.

    Fix: Standard or revised standard first, actual second. A positive result is favourable. Check that grade-wise mix variances add up to a net figure.

  • Computing revised standard hours from standard hours for output instead of actual total hours.

    Both totals look similar.

    Fix: Revised standard hours always use the total actual hours worked, redistributed in the standard ratio. This is why total mix is a pure ratio effect.

  • Not reconciling the variances.

    Time pressure.

    Fix: Spend 30 seconds checking that components add to LCV. A mismatch usually points to an hours-paid versus hours-worked slip.

Worked examples

Example 1

Standard labour time for a product is 5 hours per unit at ₹40 per hour. In a month, 1,000 units were produced. Workers were paid for 5,300 hours at ₹42 per hour. Of these, 200 hours were idle. Calculate labour cost, rate, efficiency and idle time variances.

Show the solution
  1. Standard hours for actual output = 1,000 × 5 = 5,000 hours. Hours worked = 5,300 − 200 = 5,100.
  2. Standard cost = 5,000 × ₹40 = ₹2,00,000. Actual cost = 5,300 × ₹42 = ₹2,22,600.
  3. LCV = ₹2,00,000 − ₹2,22,600 = ₹22,600 (A).
  4. Rate variance = (₹40 − ₹42) × 5,300 = ₹10,600 (A).
  5. Idle time variance = 200 × ₹40 = ₹8,000 (A).
  6. Efficiency variance = (5,000 − 5,100) × ₹40 = ₹4,000 (A).
  7. Check: 10,600 + 8,000 + 4,000 = ₹22,600 (A).

Answer: LCV ₹22,600 (A); rate ₹10,600 (A); idle time ₹8,000 (A); efficiency ₹4,000 (A).

Example 2

Standard labour for 80 units: skilled 40 hours at ₹50 and unskilled 60 hours at ₹30. Actual output was 800 units. Actual hours worked (no idle time): skilled 450 at ₹52, unskilled 580 at ₹29. Calculate labour cost, rate, efficiency, mix and yield variances.

Show the solution
  1. Actual output 800 units is 10 times the standard batch of 80. Standard hours for actual output: skilled 400, unskilled 600, total 1,000.
  2. Standard cost = 400 × 50 + 600 × 30 = 20,000 + 18,000 = ₹38,000.
  3. Actual cost = 450 × 52 + 580 × 29 = 23,400 + 16,820 = ₹40,220. LCV = ₹2,220 (A).
  4. Rate: skilled (50 − 52) × 450 = ₹900 (A); unskilled (30 − 29) × 580 = ₹580 (F). Net rate = ₹320 (A).
  5. Efficiency: skilled (400 − 450) × 50 = ₹2,500 (A); unskilled (600 − 580) × 30 = ₹600 (F). Net efficiency = ₹1,900 (A).
  6. Check: 320 + 1,900 = ₹2,220 (A).
  7. Total actual hours = 1,030. Revised standard hours in 40:60 ratio: skilled 412, unskilled 618.
  8. Mix: skilled (412 − 450) × 50 = ₹1,900 (A); unskilled (618 − 580) × 30 = ₹1,140 (F). Net mix = ₹760 (A).
  9. Yield: skilled (400 − 412) × 50 = ₹600 (A); unskilled (600 − 618) × 30 = ₹540 (A). Total yield = ₹1,140 (A).
  10. Check: 760 + 1,140 = ₹1,900 (A), equal to efficiency.

Answer: LCV ₹2,220 (A); rate ₹320 (A); efficiency ₹1,900 (A); mix ₹760 (A); yield ₹1,140 (A).

Exam tips

  • Write the formula heading for each variance and label F or A. Marks are often given for method even when arithmetic slips.
  • Read carefully whether hours are paid or worked. Idle time questions are built around this difference.
  • Answer comments carefully. A short reason, such as use of lower-grade labour or poor supervision, earns marks in written parts.
  • In MCQs, often one variance is asked. Compute only that one and use the quick grid rather than the full set.
  • Always show the reconciliation line at the end. It proves the working is complete.

Practice questions from Variance Analyses

Labour Cost 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 Cost Variances: frequently asked questions

What is the difference between labour rate variance and labour efficiency variance?

Rate variance measures the effect of paying a different rate per hour than standard, applied to hours paid. Efficiency variance measures the effect of using more or fewer hours than standard for the actual output, valued at the standard rate and applied to hours worked.

How do you calculate idle time variance?

Multiply the idle hours by the standard rate per hour. It is always adverse because the hours are paid but produce nothing. Remember to remove idle hours from hours paid to get hours worked before finding efficiency variance.

How are labour mix and yield variances related to efficiency variance?

Efficiency variance equals mix variance plus yield variance, when idle time is treated separately. Mix shows the effect of using grades in a different ratio from standard. Yield shows the effect of total hours being different from standard for the output achieved.

Is rate variance calculated on hours paid or hours worked?

Where idle time is shown separately, use hours paid, since wages are paid for all those hours. If there is no idle time, hours paid and hours worked are the same.