Labour efficiency variance = (Standard hours for actual output − Actual hours) × ?
AStandard rate
BActual rate
CDifference of rates
DStandard output
Answer & Solution
Correct answer: A. Standard rate
1. Labour efficiency variance isolates the impact of using more or fewer hours than allowed.
2. The hours are valued at the standard rate to keep the price effect out.
3. Using actual rate would mix two effects (efficiency and rate).
4. Hence the valuation factor is the standard rate.
_Source: ICAI BoS Inter Paper 3, Ch 13 "Standard Costing", §13.5.2 ¶3_
Related questions
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