Variable Overhead Variance:

Variable Overhead Variance:

                Variable Overhead is normally using by the managerial accountants or the cost accountants. The definition and further explanation about variable overhead variance are as follows:

Definition:

                Variable overhead variance is the difference between the actual labor cost and the standard labor cost. “Variable Overhead is those productions costs which have the relationship roughly to change the production process output. We select this concept over the modeling of a production department future costing about its expenditure and sales at the lowest price.”

There are many examples we have for variable overheads and that are the production supplies for a production process, types of equipment and other utility expenditures, and the material handling charges and the production department employees salaries.

The Total Overhead Variance is composed of variable and fixed portion. The three-way breakdown (Static budgeted variance, flexible budgeted variances, sales volume variance). The Variable Overhead Variance is decomposed into the variable overhead spending variance and the variable overhead efficiency variance.

Further, the flexible budgeted variance component can be decomposed into a fixed overhead spending variance and a fixed overhead volume variance.

·         Variable overhead is the difference between the actual labor cost and the standard labor cost. It aeries from variance in productivity efficiency.

·         The formula to calculate the value of the variable overhead variance is as follows:

(Actual Labor hours – Budgeted labor hours) x Standard Variable hourly rate which includes all indirect labor hours

·         For favorable Variable Overhead Variance If actual labor hours are less than the budgeted or standard amount the variable overhead efficiency variance is favorable.

·          For Unfavorable Variable Overhead Variance If actual labor hours are more than the budgeted or standard amount the variance is unfavorable.

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That is some of the key important points of Variable Overhead Variance. That is very helpful for every accountant and financial professional to understand the variable overheads and the variance of variable overhead and it is all their breakdowns.