CAT / FIA FMA Syllabus E. Standard Costing - Variable overhead total, expenditure and efficiency variances - Notes 4 / 8
The variable production overhead total variance can be subdivided as follows:
| variable overhead total variance = | actual units should have cost | $x |
| actual units did cot | $x | |
| --------- | ||
| var overhead total variance | $x (f/a) | |
| --------- | ||
| variable overhead expenditure variance = | actual hrs should cost | $x |
| actual hrs did cost | $x | |
| --------- | ||
| var overhead exp variance | $x (f/a) | |
| -------- | ||
| variable overhead efficiency variance = | actual units shd have taken | x hrs |
| actual units did take | x hrs | |
| -------- | ||
| efficiency variances in hrs | x hrs (f/a) | |
| x standard rate per hr | $x | |
| --------- | ||
| efficiency variance in $ | $x (f/a) | |
| ====== |
Illustration - Variable overhead expenditure variance
Variable overhead rate/hour $2
Actual hours worked 44,100
Actual amount paid for actual hours worked $100,000
What is the variable overhead expenditure variance?
Solution
44,100 should pay 44,100 x $2= $88,200
Did pay $100,000
Variable overhead expenditure variance is $11,800 Adverse (Paid more than should have)
Illustration - Variable overhead efficiency variance
Actual production 8,900 units
Standard hours/unit 5
Variable overhead rate/hour $2
Actual hours worked 44,100
What is the variable overhead efficiency variance?
Solution
Should work 8,900 x 5 hours = 44,500 hours
Did work 44,100
Variable overhead efficiency variance is 400 hours x $2/hour = $800 Favourable (We paid less than we should have)