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What is Direct Labour Variance?
Direct labour variance refers to the difference between the actual cost and standard cost of labour, as well as, the actual yield and standard yield of labour. When you are planning a budget calculating variance is important. With the help of this, the accounting department of a business control’s the effective use of labour, fixing the wage rate, and rest of the expenses.
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Types of Direct Labour Variance
Labour variance is very essential to the understanding of how to control budget. Following are the types of direct labour variance.
Direct Labour Rate Variance
Direct labour rate variance means the actual hours that labour has been working and the difference between the estimated or standard rate of labour and actual cost of labour. Below is the formula which will help you to understand it in a better way.
Direct labour rate variance = (standard rate – actual rate) x actual labour hours
DL rate variance = (SR – AR) x AH
The HR department of the company uses this variance to negotiate the terms of lower wages with its labour unions or employees.
Direct labour Efficiency Variance
Labour efficiency variance, as the term is self-explanatory, it calculates the effectiveness of labour produce. This variance indicates the product of standard direct labour rate and the difference between the standard or projected amount of hours that the department allows and the actual amount of hour’s labour uses.
With the help of this the department understand if they’re able to use the skills of the workers to gain the maximum amount of good quality products. Following is the formula of direct labour efficiency variance.
Direct labour efficiency variance = (standard labour hours – actual labour hours) x actual rate of labour
DL efficiency variance = (SH – AH) x AR.
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