Content
1. Meaning of overhead variance
2. Classification of overhead variance
3. Variable overhead Meaning and Types
4. Formulas with Solved Numerical
5. Fixed overhead Variance
6. Download PPT
1. MEANING
Overhead variance – Overhead variances may arise due to the difference between standard overhead costs and the actual overheads incurred.
2. CLASSIFICATION
It can be classified into two parts.
1. Variable overhead variance
2. Fixed overhead variances
3. Variable Overhead Variance
Variable overhead – Variable overhead is the cost of operating a business, which fluctuates with manufacturing activity.
Examples- production supplies, utilities for the equipment, wages for handling.
Variable overhead Variance – Overhead variances may arise due to the difference between standard Variable overhead costs and the actual Variable overheads incurred.
Variable overhead is further divided into three parts & formulas:
1. Variable overhead cost variance (VOCV)
2. Variable overhead expenditure variances ( VOEV )
3. Variable overheads efficiency variance (VOEV)
1. VARIABLE OVERHEAD COST VARIANCE (VOCV)
It is the difference between the standard variable overhead for actual output and the actual variable overhead incurred.
In other words, to find the difference between Standard variable cost of output Budgeted And Actual Incurred. It represents the Under/Over Variable Overhead.
Formula of Variable Overhead Cost Variance
VOCV= Standard variable overhead for actual output – Actual Variable Overhead
Or
(Actual Output in Units * Standard Rate Per Unit) – (Actual output * actual rate)
2. VARIABLE OVERHEAD EXPENDITURE VARIANCE
It is the difference between the actual amount of a particular expense and the expected ( budgeted ) amount of an expense during a period.
Formula of Variable Overhead Expenditure Variance
(VOEV) = Standard variable overhead for actual Hour worked – Actual Variable Overhead
OR
(Actual Total Time * Standard Rate Per Hour) – (Actual output * actual rate)
3. VARIABLE OVERHEAD EFFICIENCY VARIANCE (VOEV)
It is the measure of impact on the standard variable overheads due to the difference between a standard number of manufacturing hours and the actual hours worked during the period.
It is a mixture of both Cost and Expenditure. It is for actual time taken to produce and Budgeted time sets to be produced.
Formula of Variable Overhead Efficiency Variance
VOEV= ( Standard variable overhead for actual output – Standard variances overhead for actual hour worked )
OR
(Actual output* Standard Rate Per unit)- (Actual Output* Standard Rate Per hour)
Verification ~ Cost = Exp + Efficiency
Numerical Solved
| Particulars | Standard | Actual |
| Output in units | 2500 Units | 2000 Units |
| Labour (Hrs) | 5000 Hrs | 6000 Hrs |
| Variable overhead | ₹1000 | ₹1500 |
1. VOCV=
( Actual Output in Units * Standard Rate Per Unit ) – ( Actual output * actual rate per unit )
= (2000*1000/2500)- (2000*1500/2000) = (2000*0.4)- (2000*0.75)= 800 – 1500 = 700A
A means Adverse for Unfavourable amount and For Favourable Amount “F” word .
2. VO Expenditure Variance= (Actual Total Time *Standard Rate Per Hour)- (Actual output * actual rate per hour)
= ( 6000 * 1000/5000 ) – (2000 * 1500/6000) = 1200-1500 = 300A
3. VO Efficiency Variance= (Actual output* Standard Rate Per unit)- (Actual hour* Standard Rate Per hour)
= ( 2000*1000/2500)- (6000*1000/5000) = 800-1200= 400A
Verification~ Cost = Exp + Efficiency
700A = 300A + 400A
2. Fixed Overhead Variances with Numerical
Meaning, Formulas and Numericals- Fixed Overhead Variance
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