Direct Labor Wage and Efficiency Variances

Two basic ways in which the actual cost of direct labor can deviate from standard cost is through: $(1)$ wage rate or $(2)$ the number of hours used in production. Therefore, the labor rate variance and the labor efficiency variance are typically calculated in determining whether or not the cost of direct labor is as expected or not. When standard costing is used in this way it is used for

The labor rate variance compares the actual price paid per unit of direct materials to the standard price. The difference is then multiplied by the actual quantity of materials.

Labor rate variance Actual wage $$ Actual hours