Total Labour Efficiency Variance | Meaning | Causes | Formula

What is Total Labour Efficiency Variance?

Total labour efficiency variance is a part of labour cost variance. It is otherwise called as Labour time Variance.

Definition of Total labour efficiency variance

According to ICMA, London,

It is that portion of labour (wages) variance which is due to the difference between standard labour hours specified for the activity achieved (actual output) and actual hours expended.

This variance reflects the efficiency or inefficiency of the workers.

Total labour efficiency variance formula

The following formula is used to calculate Total Labour Efficiency Variance.

TLEV= SR (SH — AH)

TLEV= Total Labour Efficiency Variance

SR = Standard Rate

SH = Standard Hours for Actual Output

AH = Actual Hours Booked or Actual Hours Taken

If the standard hours is more than the actual hours, the variance will be favorable and on the other hand if the standard hours is less than the actual hours, the variance will be unfavorable or adverse.

Actual hours booked or actual hours taken means that the idle hours forced by factors like strikes, lockouts, machine breakdown, power failure etc., are also included in the calculation of total labour efficiency or time variance.

Causes for Total Labour Efficiency Variance

1. Go slow tactics adopted by the trade union.

2. Defective and bad materials.

3. Lack of proper supervision.

4. Breakdown of plant and machinery.

5. Power failure.

6. Insufficient training and incorrect instructions.

7. Employment of efficient workers for full time and incentives given to them.

8. Loss in waiting time.

9. Increase in labour turnover.

10. Time lost due to delayed instructions.

11. Delay in receipt of raw materials.

12. Bad working conditions.

13. Change in the method of production.

14. Stress among the workers due to unsatisfactory personal relations.

15. Rigid system of inspection of materials.

16. Use of poor quality of raw materials requiring more time to complete work.