Variable Overhead Efficiency Variance

What Is Variable Overhead Efficiency Variance

Variable overhead proficiency variance alludes to the difference between the true time it takes to fabricate a product and the time planned for it, as well as the impact of that difference. It emerges from variance in productive proficiency.

For instance, the number of labor hours taken to make a certain amount of product might vary fundamentally from the standard or planned number of hours. Variable overhead [efficiency variance](/productivity variance) is one of the two parts of total variable overhead variance, the other being variable overhead spending variance.

Figuring out Variable Overhead Efficiency Variance

In mathematical terms, variable overhead productivity variance is defined as:
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The hourly rate in this formula incorporates such indirect labor costs as shop foreman and security. Assuming that genuine labor hours are not exactly the planned or standard amount, the variable overhead productivity variance is good; assuming that real labor hours are more than the planned or standard amount, the variance is unfavorable.

Illustration of Variable Overhead Efficiency Variance

Consider an illustration of a gadget producing plant, where the rate for standard variable overhead to account for indirect labor costs is estimated at $20 each hour. Expect that the standard number of hours required to make 1,000 gadgets is 2,000 hours. Notwithstanding, the company really required 2,200 hours to fabricate 1,000 gadgets. In this case, the unfavorable variable overhead effectiveness variance is (2,200 - 2,000) x $20 = $4,000; the variance is unfavorable on the grounds that the company required some investment than planned to create the 1,000 gadgets. In the event that the company had rather required 1,900 hours to fabricate 1,000 gadgets, the variance would be positive $2,000.