Efficiency Variance

Every week, you mow the lawn. It usually takes you 20 minutes. This week, it took you a half hour. That 10-minute difference represents an efficiency variance.

In technical terms, the efficiency variance looks at the difference (that is, the variance) between the amount of time or materials that you expect to go into a task and the amount of time or materials that the task actually takes.

You thought the lawn would take 20 minutes to mow. It took 30. There's a 10-minute efficiency variance.
Companies use the efficiency variance to track their production. Each unit of output (say, a bag of cookies or a foot massage) takes up a certain amount of expected resources. The cookies need so much sugar and flour; they need so much of a baker's time and so much time in the oven. If a batch takes more sugar than usual, the company knows something, uh...happened.

The firm will investigate any change from its projected level of labor or material input. The efficiency variance thus allows companies to flag production situations that are unusual or unexpected. They can then either fix the problem or alter their expectations.