Overhead is the aggregate of indirect material cost, indirect wages (indirect labour cost) and indirect expenses. Thus, overhead costs are indirect costs and are important for the management for the purposes of cost control.
Under cost accounting, overhead costs ace absorbed by cost units on some suitable basis. Under standard costing, overhead rates are predetermined in terms of either labour hours (per hour) or production units (per unit of output).
The formula for the calculation of overhead cost variance is given below:
Overhead Cost Variance = Actual Output x Standard Overhead Rate per unit Actual Overhead Cost or,
= Standard Hours for Actual Output x Standard Overhead Rate per hour Actual Overhead Cost