Which components comprise labour variance?

Labour variance is primarily concerned with evaluating the differences between the actual labor costs incurred and the expected or standard labor costs. The two components that make up labour variance are the labour rate variance and the labour efficiency variance.

The labour rate variance measures the difference between the actual hourly wage rate paid to employees and the standard rate that was expected, multiplied by the actual hours worked. This variance provides insight into whether labor costs are higher or lower than anticipated due to wage discrepancies.

The labour efficiency variance, on the other hand, assesses the efficiency of labor utilized in production. It compares the actual hours worked to the standard hours expected for the actual level of production, multiplied by the standard rate. This variance indicates whether more or fewer hours were needed to produce a given level of output compared to what was planned.

Together, these variances offer valuable insights into labor management, allowing organizations to identify and address issues related to labor costs more effectively. Thus, the inclusion of both labour rate variance and labour efficiency variance accurately captures the complete picture of labor variance, making it the correct answer.