# Direct Labour Cost Variance Direct labour cost variance is the difference between the standard cost of direct labour allowed for the actual output and the actual cost incurred for the direct labour used. It is an important part of labour cost variance under standard costing. Management uses this variance to identify whether labour costs have been controlled according to predetermined standards and to determine the reasons for favourable or unfavourable deviations. Direct labour cost is the expenditure incurred on wages paid to workers who are directly engaged in the production of goods or services. Under standard costing, a standard wage rate and standard labour hours are established for a particular level of output. After production takes place, the actual hours worked and actual wage rate are compared with these standards. The resulting difference represents the direct labour cost variance. The formula for direct labour cost variance is: Direct Labour Cost Variance = Standard Labour Cost for Actual Output − Actual Labour Cost Where: Standard Labour Cost = Standard Hours for Actual Output × Standard Rate per Hour and Actual Labour Cost = Actual Hours Worked × Actual Rate per Hour A favourable variance arises when the standard labour cost is greater than the actual labour cost. This means that the organisation has spent