Read this section again to make sure that you understand fully the formulae in Table 15.2.

Try to produce a diagram for direct labour similar to that drawn in Figure 15.4 for direct materials. Note down the similarities and the differences between the formulae for direct materials variances and the formulae for direct labour variances.

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Table 15.2 Calculation and formulae for direct labour variances Variance Total cost variance Direct labour rate variance Direct labour efficiency variance Calculation Standard cost of labour (SC) minus actual cost of labour (AC) This may be shown in more detail as: Standard cost (SC) = standard labour rate (SR) multiplied by standard hours allowed (SH) minus Actual cost (AC) = actual labour rate (AR) multiplied by actual hours worked (AH) Actual hours worked (AH), multiplied by the difference between the standard labour rate (SR) and the actual labour rate (AR) Standard labour rate (SR) multiplied by the difference between the standard hours allowed (SH) and the actual hours worked (AH) Formula SC - AC SC = (SRX SH) minus AC = (AR AH) AH (SR - AR) SR (SH- AH)