A direct labor budget variance is further analyzed into a direct labor (price/rate/spending) variance and a direct labor (usage/efficiency) variance.

A direct labor budget variance is broken down into two main components for further analysis.

1. Direct Labor Price/Rate/Spending Variance: This variance is the difference between the actual cost of labor and the standard cost that was initially budgeted for labor. It is calculated as the difference between the actual hourly rate paid and the standard hourly rate, multiplied by the actual hours worked.

2. Direct Labor Usage/Efficiency Variance: This variance is the difference between the actual hours worked and the standard hours that were expected to be worked. It is calculated as the difference between the actual hours worked and the standard hours, multiplied by the standard hourly rate.

By breaking down the direct labor budget variance into these two components, a company can better understand whether the variance was due to paying a different rate for labor (price variance) or using a different amount of labor (efficiency variance) than was initially budgeted.