Efficiency Variance

The efficiency variance is the budget based on the actual hours worked less the budget based on standard hours allowed for the actual output. If variable overhead only is being analyzed, the formula can be expressed as the standard rate times the difference between the actual hours and the standard hours, and the formula corresponds to the direct material usage variance and the direct labor efficiency variance. See also direct material usage variance and direct labor efficiency variance and spending variance and budget (controllable) variance and volume variance.