DEFINITION of 'Efficiency Variance'
The difference between the theoretical amount of inputs required to produce a unit of output and the actual amount of inputs used. In manufacturing, efficiency variance can be used to analyze the effectiveness with respect to labor, materials, machine time and other production factors.
BREAKING DOWN 'Efficiency Variance'
An important factor in measuring efficiency variance is the development of a set of realistic assumptions surrounding the theoretical amount of inputs that should be required. If the actual amount of inputs used exceeds the amount theoretically required, there is a negative efficiency variance. On the other hand, if actual inputs are less than the amounts theoretically required, then there would be a positive efficiency variance. Since the baseline theoretical inputs are often calculated for the optimal conditions, a slightly negative efficiency variance is normally expected.

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Understand what price variance is in relation to cost accounting. Learn the most common way price variance arises and how ... Read Answer >> 
How is an unfavorable variance discovered?
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Is variance good or bad for stock investors?
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What is the difference between standard deviation and variance?
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How much variance should an investor have in an indexed fund?
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How can I measure portfolio variance?
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