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Material and labour variances

Edexcel IAL Accounting · WAC12 Corporate and Management Accounting

Material and labour variances split the difference between standard and actual cost into a price (or rate) part and a quantity (usage or efficiency) part, so the right manager can be asked to explain it.

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Material variances

Using SP = standard price, AP = actual price, SQ = standard quantity for actual output, AQ = actual quantity used:

Material price variance = (SP - AP) x AQ
Material usage variance = (SQ - AQ) x SP
Total material variance = (SQ x SP) - (AQ x AP) = price + usage

A positive answer is favourable (F): actual cost is lower than standard. Negative is adverse (A). Always label the variance; the October 2022 mark scheme wrote 'Adverse' in full, the June 2022 one used 'Adv', and 'F'/'A' is common in budget statements.

Labour variances

Using SR = standard rate, AR = actual rate, SH = standard hours for actual output, AH = actual hours paid:

Labour rate variance = (SR - AR) x AH
Labour efficiency variance = (SH - AH) x SR
Total labour variance = (SH x SR) - (AH x AR) = rate + efficiency

Examiners advise finding the total by adding the two sub-variances, which also earns own-figure marks.

Standard quantity for actual output

The comparison is always with the standard allowed for the actual output, not the budgeted output. If 2,000 units are made and each should use 4 kg, SQ = 8,000 kg, whatever the budget said.

Worked variances

Standard: 4 kg at £2.50 per kg; 1.5 hours at £12.00 per hour. Actual output 2,000 units; 8,300 kg cost £19,920; 2,900 hours cost £36,250.

Variance	Working	Result
Material price	(2.50 - 2.40) x 8,300	£830 F
Material usage	(8,000 - 8,300) x 2.50	£750 A
Total material	20,000 - 19,920	£80 F
Labour rate	(12.00 - 12.50) x 2,900	£1,450 A
Labour efficiency	(3,000 - 2,900) x 12.00	£1,200 F
Total labour	36,000 - 36,250	£250 A

Worked example

Standard: 3 kg at £5.00 per kg. Actual: 1,200 units made using 3,750 kg bought for £18,000. Calculate the material variances.

AP = 18,000 / 3,750 = £4.80; SQ = 1,200 x 3 = 3,600 kg
Price = (5.00 - 4.80) x 3,750 = £750 F
Usage = (3,600 - 3,750) x 5.00 = £750 A
Total = 18,000 - 18,000 = £0

Answer: Price £750 F, usage £750 A, total £0

Key idea: Price = (SP - AP) x AQ; usage = (SQ - AQ) x SP; rate = (SR - AR) x AH; efficiency = (SH - AH) x SR; SQ and SH are for actual output; label F or A.

Check yourself

Standard price £6.00 per kg. 4,200 kg were bought and used, costing £24,780. Calculate the material price variance (positive for favourable, negative for adverse).
Show answer
£420. AP = £5.90; (6.00 - 5.90) x 4,200 = £420: favourable, because the actual price was below standard.
Standard usage is 2 kg per unit at £6.00 per kg. 2,000 units were made using 4,200 kg. Calculate the material usage variance (positive for favourable, negative for adverse).
Show answer
£-1200. (4,000 - 4,200) x 6.00 = -£1,200: adverse.
Standard rate £10.50 per hour. Workers were paid £35,310 for 3,300 hours. Calculate the labour rate variance (positive for favourable, negative for adverse).
Show answer
£-660. AR = £10.70; (10.50 - 10.70) x 3,300 = -£660: adverse.
Standard time is 1.5 hours per unit at £10.50 per hour. 2,000 units took 3,300 hours. Calculate the labour efficiency variance (positive for favourable, negative for adverse).
Show answer
£-3150. (3,000 - 3,300) x 10.50 = -£3,150: adverse.
Standard labour cost for actual output is £28,800. Actual labour cost is £27,950. Calculate the total labour variance (positive for favourable).
Show answer
£850. 28,800 - 27,950 = £850 favourable.
28 workers each work 40 standard hours at £9.60 per hour plus 120 hours of overtime in total at £14.40 per hour. Standard hours for the output were 1,120. Calculate the labour efficiency variance (positive for favourable, negative for adverse).
Show answer
£-1152.00. Actual hours = 1,240; (1,120 - 1,240) x 9.60 = -£1,152: adverse.
When calculating the material usage variance, what is the standard quantity?
- The quantity in the original budget
- The quantity purchased
- The standard quantity allowed for the actual output
- The quantity in the stores at the year end
Show answer
The standard quantity allowed for the actual output. Variances compare actual inputs with what the actual output should have used.
A labour rate variance is calculated as -£640. How should it be described?
- £640 favourable
- £640 efficiency variance
- £640 usage variance
- £640 adverse
Show answer
£640 adverse. Negative means actual cost exceeded standard: adverse.

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Last updated 8 November 2026. Spotted a mistake? Tell us.