Variable production overheads variance

Last updated: 21.03.2016

Variable production overheads variance is calculated similarly as direct labor cost variance. Only variable production overhead per labor hour must be calculated instead of labor rate.

 

Example

Budget: 10 labor hours per €10/hour are necessary to produce a unit; produced output is 1 000 units

Actual: 8 labor hours per €12/hour are necessary to produce a unit; produced output is 1 100 units

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Total variance = (1 100 * 8 * 12) – (1 000 *10 * 10) = 105 600 – 100 000 = 5 600 (unfavorable)

Direct labor rate variance = (1 100 * 8 * 12) – (1 100 * 8 * 10) = 105 600 – 88 000 = 17 600 (unfavorable)

Direct material quantity (efficiency) variance = (1 100 * 8 – 1 000 *10) * 10 = - 12 000 (favorable)

Check: Rate variance + Quantity variance = 17 600 – 12 000= 5 600



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