Tuesday, October 12, 2010

Labor Efficiency Variance (LEV)

What is Labor Efficiency Variance (LEV)?

Labor efficiency variance (LEV) is the difference between the actual hours worked by employees and the standard hours allowed for the actual output. This is then all multiplied by the standard hourly labor rate that the company employs.

This variance may actually result from many unique and different factors. Some factors include poorly trained or motivated workers, materials of a different quality than standard, faulty equipment causing breakdowns and work interruptions,  poor supervision of workers or using workers with different level of skills than expected.

Identified when direct labor hours are worked; formula is SP (AQ - SQ). 

A single journal entry is used to journalize the labor variances because when direct labor hours are worked, their cost goes directly into work-in-process inventory.

1 comment:

Teresa Halminton said...

Thank you! This is what I need to know more about.
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