Labour variances answer two simple questions: Did we pay the right wage rate? and Did workers take the right amount of time? Once you internalize that split, the entire variance tree becomes mechanical.
When a company sets a standard cost, it pre-decides: "Each unit should take Y hours at ₹X per hour." Reality diverges — workers get overtime, there's a power cut, a new supervisor slows the line. Labour Cost Variance (LCV) captures the total gap: Standard Cost of Actual Output minus Actual Cost. This single number then splits into two children. Labour Rate Variance (LRV) asks "was the rate right?" — formula: Actual Hours Paid × (Standard Rate − Actual Rate). If you paid ₹42/hr against a standard of ₹40/hr, every hour paid hurts — Adverse. Labour Efficiency Variance (LEV) asks "was the time right?" — formula: Standard Rate × (Standard Hours for Actual Output − Actual Hours Paid). Critical: always use Standard Hours for Actual Output (not budgeted hours) and Actual Hours Paid (not worked) in this formula. The golden check: LCV = LRV + LEV.
When idle time exists (machine breakdown, power failure), LEV splits further into: Idle Time Variance = Standard Rate × Idle Hours (this is always Adverse — idle time is never good news), and Pure Efficiency Variance = Standard Rate × (Standard Hours for Actual Output − Actual Hours Worked). The sub-check: LEV = Idle Time Variance + Pure Efficiency Variance. A third split — Labour Mix Variance — applies only when multiple labour grades work together (e.g., skilled + semi-skilled on one job). It checks whether the actual mix matched the standard mix. For most exam questions, the LCV → LRV + LEV → Idle Time + Pure Efficiency tree is what you need. Always label every answer Favourable (F) or Adverse (A) — unlabelled answers lose marks. This topic appears as 5-mark or 8-mark questions almost every attempt.