Variable overhead variance: Variable overheads vary directly with the volume of output and hence, the standard variable overheads very directly with the volume of output and hence, the standard variable overhead rate remains uniform. Therefore, computation of variable overhead variance, also known as variable overhead cost variance parallels the material and labour cost variances.
Thus, variable overhead cost variance (VOCV) is the difference between the standard variable overhead cost for actual output and the actual variable overhead cost.
It can be calculated as follows:
VOCV = (Actual Output x Standard Variable Overhead Rate per unit) – Actual Variable Overheads
or, = (Standard Hours for Actual Output X Standard Variable Overhead Rate per hour) –Actual Variable Overheads.
In case information relating to standard hours allowed, for actual output and the actual time (hours) taken is available, variable overhead cost variance can be further analysed into:
- Variable Overhead Expenditure or Spending Variance, and
- Variable Overhead Efficiency Variance.