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Labour efficiency variance measures the effect of a difference in
Awage rate paid per hour
Bmaterial consumed per unit
Chours taken to finish the work
Doverhead absorbed per hour
Answer & Solution
Correct answer: C. hours taken to finish the work
1. Labour cost variance splits the same way material cost variance does.
2. The rate variance isolates paying a different wage rate.
3. The efficiency variance isolates taking a different number of hours for the output achieved.
4. So efficiency is about hours, and rate is about price per hour.
_Source: ICAI Cost and Management Accounting Ch13 'Standard Costing', section 13.7.2_
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