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Of the several uses of standard costing, one of the most controversial is using these standards for performance evaluation of an individual, team, or unit. Consider the labor efficiency variance and assume it is one of the measures for a company's performance evaluation of a business unit. When might or might not variance from such a standard be an appropriate measure? How would this metric's effectiveness as a performance measure be affected by a decrease in demand or changes in production volume? Would its effectiveness be different for a service unit than a manufacturing unit? In the event that it is not effective as a performance measure, does it have a strong purpose? How does this compare with other variances from standard?

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