Explain what is Variable Overhead Expenditure Variance

VARIABLE overhead variances comprises:

· Expenditure variance and

· Efficiency variance

CAUSES OF VARIABLE EXPENDITURE OVERHEAD VARIANCE:

For Variable Expenditure variance, the reasons are:

1. price changes in overhead items;

2. inaccurate estimates of one or more item comprising variable overhead;

3. efficiency or inefficiency in the use of the variable overhead

4. inadequate control of an item of overhead cost;

5. volatile behaviour of item of overhead costs; and

6. relationship between variable overheads and direct labor hours is not perfect.

FORMULA OF VARIABLE EXPENDITURE VARIANCE

Formula:

· (Standard variable overhead rate less Actual variable overhead rate ) x actual rate

· (Standard variable overhead rate x actual hours) less actual variable overhead.