What is a Time Variance?

A time variance is the difference between the standard hours and actual hours assigned to a job. The concept is used in standard costing to identify inefficiencies in a production process. The variance is then multiplied by the standard cost per hour to quantify the monetary value of the variance.

How to Calculate Time Variance

In order to calculate a time variance, subtract the actual duration of an activity from its planned duration. The formula is as follows:

Planned duration - Actual duration = Time variance

When the resulting variance is positive, this indicates that the activity was completed with less elapsed time than expected, while a negative variance indicates that the activity took more time than expected.

Example of Time Variance

A company produces custom furniture, and employees record their hours on time tickets for each job. The planned time for a task is eight hours, while the actual time taken is ten hours, resulting in an unfavorable time variance of two hours. If employees are paid $20/hour, the extra two hours costs the company $40 more than expected.

Problems with the Time Variance

The main problem with the time variance concept is that it is calculated from a baseline that may have been poorly derived. Thus, if the baseline time goal was overly optimistic, there will always be an unfavorable time variance, no matter how efficiently the work may be conducted.

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