What is Efficiency Variance?
Efficiency variance is the difference between actual and standard quantity of input (labor hours, materials) for the actual output achieved, valued at the standard price. It measures how efficiently inputs were used in production.
How It Works
- Determine standard input per unit of output.
- Multiply by actual output to get the expected input.
- Compare to actual input used.
- Multiply the difference by the standard price to get the variance.
Saudi Context
Saudi factories track labor efficiency variance to manage Saudization-related workforce costs and identify training needs.
Example
Standard 2 hours per unit at SAR 50 per hour. Produced 1,000 units with 2,100 hours actual. Efficiency variance = (2,000 – 2,100) x 50 = -SAR 5,000 unfavorable.