Performance reporting is a crucial aspect of cost controlling as it relates to the budgeted outcome with the actual consequences ( Marshall, McManus, & Viele, 2014) . The reporting aims at highlighting activities where the expected results vary from the actual results to be either advantageous or disadvantageous. These consequences then provoke the adjustment of the set objectives or modifications of the manner activities to take place. Thus, it is imperative to engage performance indicators such as the direct labor efficiency variance.
The rate of direct labor is the computation of the variation between the standard and actual pay rates per hour (the cost of input variance per unit). But these calculations do not involve the efficiency of the labor used as the calculated rate variance indicates a higher rate paid to workers in comparison to the allowed standard time for processing ( Van de Walle, & Cornelissen, 2016) . Thus, the direct labor efficiency variance (DLEV) computes the quantity variance (efficiency variance) and is more appealing as the production took lesser labor hours than permitted at standard processing. Consequently, the computation of the labor efficiency variance expressed as the dollar amount for July and the number of workers is as follows:
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Number of Workers
Employees Expected pay = 7.5/day
Compensation = $135/day/Employee
Number of Working Days in July = 20 days
Standard time Simple claim processing time = 36 minutes
Standard time complex claim processing time = 1.25 hours
Simple Claims processed = 3,000
Complex Claims = 960
Therefore,
Number of Workers = Standard pay rate x (Actual Qty Used x Standard Qty Permitted)
= 7.5 x (20x130) = 19,500
Labor Efficiency Variance
DLEV = (Std. cost/unit – Act. cost/unit) x Act. Used Qty.
= [(20 hr x 100 claims) – 1800 hr] x 7.5
= $1,500F
References
Marshall, D., McManus, W., & Viele, D. (2014). Accounting: What the Numbers Mean (10th Ed.). New York: McGraw-Hill Irwin, pp. 592-628. ISBN: 007802529-7.
Van de Walle, S., & Cornelissen, F. (March 26, 2016). Performance Reporting. The Oxford Handbook on Public Accountability . Oxford: Oxford University Press, pp. 441-455. Available at doi: ssrn.com/abstract=2755061
