What does the direct labor variance measure?

The direct labor variance specifically evaluates the difference between the actual wage paid to employees and the standard wage that was expected or budgeted for those employees. This variance helps management understand how well labor costs are being controlled relative to the standards set in the budget. If the actual wages paid are higher than the standard wages, it indicates an unfavorable variance, suggesting that either labor rates have increased or there may be issues with productivity. Conversely, if actual wages are lower than the standard, this indicates a favorable variance, reflecting efficient labor cost management. This measure is crucial for identifying labor cost discrepancies and ensuring efficient financial planning and control.