Overhead Variance Analysis

Question 1

Define the “variable overhead spending variance”.

Answer 1

A controllable variable overhead variance calculated by multiplying the difference between the actual variable overhead rate and the estimated variable overhead rate by the actual number of units used (hours, gallons, pounds, etc. depending on the allocation base used).

Question 2

Define “budget variance”.

Answer 2

A controllable fixed overhead variance equal to the difference between the budgeted fixed overhead and the actual fixed overhead; budget variances are the result of unexpected changes in components of fixed overhead (i.e., a change in the salvage value or the estimated life of a piece of manufacturing equipment triggers a change in depreciation expense).

Question 3

Define “overhead efficiency variance”.

Answer 3

A controllable variable overhead variance calculated by multiplying the difference between the actual allocation base units used (hours, gallons, pounds, etc.) and the estimated allocation base units by the estimated cost per unit.

Question 4

Define “volume variance”.

Answer 4

An uncontrollable fixed overhead variance equal to the difference between budgeted fixed overhead and fixed overhead applied to production (fixed overhead rate times the standard quantity of units allowed for actual production).