Variable Overhead Variance

For fixation of costs for overheads, a survey of overheads will be necessary and with the data available for budgetary control, the overheads will be charged to various cost centre/products, etc., on the basis of standard costs.For this, after dividing the overheads into fixed and variable the calculation of standard overhead rate for each cost centre/product is done. The number ofhours representing the capacity to manufacture is to be reduced by various idle facilities, etc. The choice of method of' absorption (direct wage rate or machine hour) will depend upon the circumstances. The main object is to establish a normal overhead rate based on total factory overhead at normal capacity volume.


Variable Overhead Cost Variance
The variable overhead cost variance represents the difference between the Standard cost variable overhead allowed for actual output and the actual variable overhead incurred during the period. The variance represents the under absorption or over absorption of variable overhead.


Variable Overhead Expenditure Variance
It is the difference between the actual variable overhead rate per hour and the standard variable overhead rate per hour multiplied by the actual hours worked. The actual hours worked men used not the actual hours paid because the latter may include idle time and it is usually assumed that variable overhead will not be recovered in idle time.

Variable Overhead Efficiency Variance
The variable overhead efficiency variance is calculated by taking the difference in standard output and actual output Multiplied by the standard variable overhead rate.

Variable Overhead Efficiency Variable = Standard variable overhead rate[Standard output − Actual output]