Labour efficiency variance is the difference between the standard labour hour that should have been worked for the actual number of units produced and the actual number of hours worked when the labour hours are valued at the standard rate.
For example, assume that the standard cost of direct labor per unit of product A is 2.5 hours x $14 = $35.
Assume further that during the month of March the company recorded 4500 hours of direct labor time.
The actual cost of this labor time was $64,800, or an average of $14.40 per hour.
This may be the result of efficient use of labor time due to automation or the use of improved production methods.