Plain definition
An efficiency variance measures the cost effect of using more or less input than the standard allowed for the actual output, at a stated standard rate. It differs from paying a different input price.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A plant produces 1,000 units. The standard allows 2 labour hours each at , or 2,000 hours; actual hours are 2,300. The labour-efficiency variance is adverse: (2,300 − 2,000) × 30. The supervisor checks training and machine downtime.
Why it matters
Extra input use can point to training, downtime, or quality loss before it becomes a larger cost problem. Separating efficiency from price directs the correction to operations rather than procurement.
Practical consequence
Use actual output and a realistic standard, then isolate rework, quality, and idle time. Tightening a standard merely to create a variance destroys its diagnostic value.