The efficiency variance is the difference between the actual unit usage of

something and the expected amount of it. The expected amount is usually
the standard quantity of direct materials, direct labor, machine usage time,
and so forth that is assigned to a product. However, the efficiency variance
can also be applied to services. For example, an efficiency variance can be
calculated for the number of hours required to complete an audit versus the
budgeted amount.

The efficiency variance is usually calculated separately for each of the

following costs:

 Direct materials. This is called the material yield variance, and is

calculated as: (Actual unit usage - Standard unit usage) x Standard cost per
unit

 Direct labor. This is called the labor efficiency variance, and is

technically related more to material usage than to efficiency. It is calculated
as: (Actual hours - Standard hours) x Standard rate

 Overhead. This is known as the overhead efficiency variance, and is

calculated as: (Actual hours - Standard hours) x Standard overhead rate

Another key component of any efficiency variance is the basis upon which
the standard is set. For example, the number of units of direct material could
assume the absence of scrap, when in fact a standard amount of scrap is
normally realized, causing a continuing negative efficiency variance. This
would be a theoretical standard, that can only be met if the circumstances
are optimal. Or, a realistic standard could be used that incorporates
reasonable inefficiency levels, and which comes close to actual results.
Generally, the latter approach is preferable, if only to avoid a depressing
series of negative efficiency variances.

Source: https://www.accountingtools.com/articles/2017/5/6/efficiency-variance