Overhead variances

Definition

Overhead variances are the differences between actual overhead costs and standard overhead costs allocated to production. They help in assessing cost control and efficiency in manufacturing processes.

5 Must Know Facts For Your Next Test

1. Overhead variances are typically divided into variable overhead variances and fixed overhead variances.
2. Variable overhead variances include spending variance and efficiency variance.
3. Fixed overhead variances include budget variance and volume variance.
4. Spending variance measures the difference between actual variable overhead costs and the budgeted costs based on actual hours worked.
5. Volume variance indicates whether production volume achieved was more or less than expected, affecting fixed cost allocation.

Review Questions

• What are the two main categories of overhead variances?
• How is spending variance calculated?
• What does volume variance indicate in terms of production?

Related terms

Standard Costs: Predetermined costs for products or services, used as benchmarks against actual costs.

Budget Variance: The difference between budgeted amounts and actual figures, reflecting cost control effectiveness.

Efficiency Variance: Measures how well resources are being utilized compared to standard expectations.