Labor Efficiency Variance Calculator

Formula

The formula to calculate the Labor Efficiency Variance (LEV) is:

\[ LEV = (LB - HW) \times LR \]

Where:

$ LEV $ is the Labor Efficiency Variance ($)
$ LB $ is the Labor Hours Budgeted (hours)
$ HW $ is the Total Hours Actually Worked (hours)
$ LR $ is the Average Hourly Labor Rate ($/hour)

What is Labor Efficiency Variance?

A Labor Efficiency Variance (LEV) is a measure of the difference between the budgeted labor hours for a job and the actual hours worked, multiplied by the average hourly labor rate. This metric helps businesses understand the cost impact of labor efficiency, indicating whether more or less labor was used than expected. A positive LEV suggests efficiency (fewer hours used than budgeted), while a negative LEV indicates inefficiency (more hours used than budgeted).

Example Calculation

Let's consider an example:

Labor Hours Budgeted (LB): 500 hours
Total Hours Actually Worked (HW): 450 hours
Average Hourly Labor Rate (LR): $25 per hour

Using the formula to calculate the Labor Efficiency Variance (LEV):

\[ LEV = (500 - 450) \times 25 = 50 \times 25 = 1250 \, \text{\$} \]

This means that the labor efficiency variance is $1250, indicating that the actual labor cost was $1250 less than the budgeted labor cost due to higher efficiency.