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Manufacturing KPI Dictionary
Labor Cost Variance: definition, formula and manufacturing interpretation
Understand labor cost variance and how to use it in manufacturing analysis.
Labor Cost Variance
Labor Cost Variance
Formula: Actual labor cost − standard/expected labor cost
Use the KPI with product, plant, customer, supplier and period context where appropriate. Connect changes to operational and financial drivers.
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Practical interpretation and manufacturing use
Labor cost variance measures the difference between actual labor cost and an expected or standard amount. It can reflect wage rates, hours, productivity, staffing and production mix.
Formula
Labor Cost Variance = Actual Labor Cost − Expected Labor Cost
How to use this KPI
- Separate rate and efficiency effects where possible.
- Analyze variance by product, line, work center or production order.
- Connect labor variance to volume, overtime, downtime and production mix.