{"id":107261,"date":"2021-02-10T14:08:14","date_gmt":"2021-02-10T08:38:14","guid":{"rendered":"https:\/\/www.vskills.in\/certification\/tutorial\/?page_id=107261"},"modified":"2024-04-12T14:29:27","modified_gmt":"2024-04-12T08:59:27","slug":"variable-overhead-variance","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/variable-overhead-variance\/","title":{"rendered":"Variable Overhead Variance"},"content":{"rendered":"\n<p>It is the difference between the standard variable overhead cost allowed for the actual output achieved and the actual variable overheads. Normally this variance is represented by expenditure (cost) variance only because variable overhead cost will vary in proportion to production so that only a change in expenditure can cause such variance.<\/p>\n\n\n\n<p>It is calculated as:<\/p>\n\n\n\n<p>Variable Overhead Variance =<\/p>\n\n\n\n<p>(Standard Variable Overhead Rate \u00d7 Actual Output) &#8211; Actual Variable Overheads<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>(Standard Hours for Actual Output \u00d7 Standard Variable Overhead Rate) \u2013 Actual Variable Overheads<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>(Standard Rate \u00d7 Actual output) \u2013 (Actual Rate \u00d7 Actual output)<\/p>\n\n\n\n<p>The variable overhead cost variance is usually calculated in total only since variable overheads vary according to output and not according to time, hence, there is only one variance. However, some accountants argue that certain variable overhead may vary according to time also, hence variable overhead efficiency variance arise just like labour efficiency variance and it can be calculated if information relating to actual time taken and allowed is given. In such case variable overhead variance can be segregated into two parts.<\/p>\n\n\n\n<p>Classification of labour variances as under:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/www.vskills.in\/lms\/wp-content\/uploads\/2016\/06\/variable-overhead-variance.png\" alt=\"variable-overhead-variance\" class=\"wp-image-34411\"\/><\/figure><\/div>\n\n\n\n<p><strong>Variable Overhead Expenditure Variance (VOExV) =<\/strong><\/p>\n\n\n\n<p>(Actual Hours \u00d7 Standard Variable Overhead Rate per Hour) \u2013 Actual Variable Overhead OR<\/p>\n\n\n\n<p>Actual Hours (Standard Variable Overhead Rate per Hour \u2013 Actual Variable Overhead Rate per Hour)<\/p>\n\n\n\n<p><strong>Variable Overhead Efficiency Variance (VOEfV) =<\/strong><\/p>\n\n\n\n<p>(Standard Time for Actual Production \u00d7 Standard Variable Overhead Rate per Hour) \u2013 Actual Hours Worked \u00d7 Standard Variable Overhead Rate per Hour).<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>Standard Variable Overhead on Actual Production \u2013 Standard Variable Overhead for actual time. OR<\/p>\n\n\n\n<p>Recovered Overheads \u2013 Standard Overheads<\/p>\n\n\n\n<p>It is better to compute variance related to variable overhead on the basis of hours rather then on the basis of units.<\/p>\n\n\n\n<p><strong>Illustration 4<\/strong><\/p>\n\n\n\n<p>The following data is obtained from the books of a manufacturing company regarding variable overheads:<\/p>\n\n\n\n<p>Budgeted production for January &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 300 units<\/p>\n\n\n\n<p>Budgeted variable overhead &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,800<\/p>\n\n\n\n<p>Standard time for one unit &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20 hours<\/p>\n\n\n\n<p>Actual production for January &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250 units<\/p>\n\n\n\n<p>Actual hours worked&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,500 hours<\/p>\n\n\n\n<p>Actual variable overhead&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,000<\/p>\n\n\n\n<p><strong>Solution<\/strong><\/p>\n\n\n\n<p>Variable Overhead Variance = Standard Cost \u2013 Actual Cost<\/p>\n\n\n\n<p>= 6,500 \u2013 7,000 = 500 (A)<\/p>\n\n\n\n<p>Workings:<\/p>\n\n\n\n<p>(a) Standard variable overhead cost of actual output<\/p>\n\n\n\n<p>= 250 units \u00d7 26 per unit = 6,500<\/p>\n\n\n\n<p>(b) Standard variable cost per unit<\/p>\n\n\n\n<p>= 7800 or 26 per unit<\/p>\n\n\n\n<p>Sometimes, a little refinement is introduced in the calculation of variable overhead variance and, therefore, the computation is as follows:<\/p>\n\n\n\n<p>(i) Variable Overhead Expenditure Variance<\/p>\n\n\n\n<p>= Actual Cost \u2013 Standard overheads on hours worked<\/p>\n\n\n\n<p>7,000 \u2013 5,850 = 1,150 (A)<\/p>\n\n\n\n<p>(a) Standard variable overhead on hours worked is\u2014<\/p>\n\n\n\n<p>4,500 hours \u00d7 1.30 per hour = 5,850<\/p>\n\n\n\n<p>(b) Standard variable overhead per hour<\/p>\n\n\n\n<p>=7800 = 1.3<\/p>\n\n\n\n<p>20 x300<\/p>\n\n\n\n<p>(ii) Variable Overhead Efficiency Variance<\/p>\n\n\n\n<p>= Standard variable overhead on hours worked \u2013 Standard variable overhead on actual output.<\/p>\n\n\n\n<p>5,850 \u2013 6,500 = 650 (F)<\/p>\n\n\n\n<p>(iii) Variable Overhead Total Variance<\/p>\n\n\n\n<p>= Expenditure Variance + Efficiency Variance<\/p>\n\n\n\n<p>1,150 (A) + 650 (F) = 500 (A)<\/p>\n\n\n\n<p>This is the same as variable overhead variance already arrived at.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It is the difference between the standard variable overhead cost allowed for the actual output achieved and the actual variable overheads. Normally this variance is represented by expenditure (cost) variance only because variable overhead cost will vary in proportion to production so that only a change in expenditure can cause such variance. It is calculated&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-107261","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Variable Overhead Variance - Tutorial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/tutorial\/variable-overhead-variance\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Variable Overhead Variance - Tutorial\" \/>\n<meta property=\"og:description\" content=\"It is the difference between the standard variable overhead cost allowed for the actual output achieved and the actual variable overheads. 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