Chapter 23, Problem 19QS

To determine

Concept Introduction:

Variable overheads are the expenses which are incurred by the company other than direct material cost and direct labour cost. As the name denotes this cost is variable in nature. i.e.,it varies with the volume of production.

The difference between the Standard Variable Overhead and the Actual Variable overhead is the Variable Overheads variance.

Like Labour Cost Variance, Variable Overhead variance may be caused because of either change in rate per hour or change in number of hours from the standard time.

Thus Variable Overhead Cost Variance is the sum of Variable Overhead spending variance and Variable Overhead Efficiency Variance.

The following are the formulas for the same:

Variable Overhead Cost Variance (VOCV) = Variable Overhead spending variance + Variable

Overhead Efficiency Variance

Also, Variable Overhead Cost Variance (VOCV) = Standard Variable Overhead Cost(SVOC) – Actual

Variable Overhead Cost(AVOC)

Variable Overhead spending Variance = Standard Variable overheads for actual hours – Actual

Variable overhead cost

Variable Overhead Efficiency Variance = Standard Variable overhead cost – Standard variable

Overheads for actual hours

To Determine: Variable Overhead Spending Variance and Efficiency Variance