All 38 Variance Analysis questions
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Budgeting & Forecasting › Variance Analysis

How is the variable overhead variance analyzed?

Intermediate

Answer

The total variable overhead variance splits into the variable overhead expenditure (spending) variance—the difference between actual variable overhead and the flexed budget for actual hours—and the variable overhead efficiency variance—(standard hours for output - actual hours) x standard variable overhead rate. Together they explain over/underspending on variable overhead.
Expenditure = Actual VOH - (AH x std VOH rate).
Efficiency = (SH - AH) x std VOH rate.
Real-world example Excess machine hours drive an adverse variable-overhead efficiency variance mirroring the labor inefficiency.

Common follow-ups: What drives the efficiency element? | What is the expenditure variance?

Variance Analysis Flexible Budgets Variance Analysis
All 38 Variance Analysis questions