Page 241 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 1. Variable overhead cost variance: It is the variance or deviation in between the standard
variable overhead for actual production of units and Actual overhead incurred.
= Standard variable overhead rate per unit × Actual output – Actual variable overheads
incurred
2. Variable overhead expenditure variance: This is the variance in between the two different
rates of variable overheads viz. standard rate and actual rate; denominated in terms of
Actual hours taken consumed by the firm.
= Actual Hours (Standard Rate – Actual Rate)

3. Variable overhead efficiency variance: It is another variance which is in between the
standard hours for actual output and actual hours consumed during the production;
denominated in terms of standard rate.
= Standard Rate (Standard Hours for Actual Output – Actual Hours)
4. Fixed overhead cost variance: The most important variance is overhead cost variance
= Standard Overhead Cost for Actual Output – Actual Overheads

The second important variance is Budgeted or Expenditure variance
= Budgeted Overheads – Actual Overheads
What is the difference in between the budgeted figures and standards?
Budgeted figures are not adjusted to the actual but the standards could be adjusted or
tuned towards the actual.
The next important variance is overhead volume variance
(a) If the standard overhead rate per unit is given

= Standard Rate per Unit (Actual Production – Budgeted Production)
(b) If the standard overhead rate per hour is given
= Standard Rate per Hour (Standard Hours for Actual Production – Budgeted
Production)
The next important variance is overhead efficiency variance
(a) If the standard rate per unit is given
= Standard Overhead Rate per Unit (Actual Production – Standard Production in
Actual Hours)
(b) If the standard rate per hour is given
= Standard Overhead Rate per Hour (Actual Hours – Standard Hours for Actual
Production)
The last as well as most important variance
(a) If the standard rate per unit is given

= Standard Rate per Unit (Standard Production – Actual Production)
(b) When standard rate per hour is given
= Standard Rate per Unit (Actual Hours – Budgeted Hours of Production)

236 LOVELY PROFESSIONAL UNIVERSITY