Any deviation from standard in the average hourly rate paid to workers:

Labor Rate Variance = (Actual Rate – Standard Rate) x Actual Hours of Labor Used

= ($10.20 - $10.00) x 7,900 = .2 x 7900 = $1,580

Labor Efficiency Variance = Difference between the amount of labor time that should have been used and the labor that was actually used, multiplied by the standard rate.

= [(4000 units x 2 hours/unit) – (7900)] x $20/hour = 100 hours x $20/hour = $2,000

Ideal Standards = Standards that can be achieved under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage. Also known as “theoretical standards.”