What Is Variable Overhead Spending Variance?

The difference between an expense’s actual and anticipated (or planned) amounts is known as a spending variance. It’s helpful to grasp what a variable overhead is to comprehend what a variable overhead expenditure variation is. One expense of operating a firm that varies according to operations is variable overhead. Variable overheads fluctuate in parallel with changes in industrial output. Generally speaking, overheads are fixed costs, such as administrative costs. Conversely, variable overheads are related to output levels.

The variable overhead expenditure variation is the difference between actual variable overhead costs, determined by the price of indirect materials used in production, and projected prices, also known as standard variable overhead costs.

Comprehending Variability in Variable Overhead Spending

The variable overhead spending variance is the difference between the actual and expected costs of variable production overheads for a particular activity level over a certain period.

Depending on whether the manufacturing process is mainly automated or conducted manually, the standard variable overhead rate is usually represented in terms of machine hours or labor hours. If a business uses automated and manual processes, it may base its standard (budgeted) rate on the number of personnel and machine hours.

Suppose the actual prices of consumables like oil and grease and indirect materials like paint are less than the standard or planned amounts. In that case, the fluctuation in variable overhead expenditure is advantageous. If the actual costs exceed the planned expenses, this is not good.

Costs that cannot directly be linked to a particular output unit are variable production overheads. On the other hand, expenses like direct labor and material fluctuate with each production unit.

An Illustration of Variable Overhead Variance

The standard or budgeted variable overhead rate is $8.40 per direct labor hour; the actual variable overhead rate is $7.30 per direct labor hour, and 140 solid labor hours are spent. The computation of the variable overhead spending variance is as follows:

$154 is the hourly difference between the real variable overhead rate of $7.30 and the standard variable overhead rate of $8.40.

Variable Variance in Overhead Spending = $154

The variance is advantageous since the actual costs are less than the standard ones.

Economies of scale, bulk discounts on commodities, less expensive suppliers, effective cost management, or mistakes in budgeting planning may all result in a positive variance.

There might be an adverse variance if there are mistakes in budgeting planning, insufficient cost management, or rising indirect labor costs.

Quick Fact

The variable overhead expenditure variance is the difference between the actual cost of variable production overheads and what they should have cost given the output during a period.

Conclusion

• The variable overhead spending variance represents the discrepancy between the actual and expected costs of variable production overheads for a certain period of activity.
• Usually, the standard variable overhead rate is stated in terms of labor or machine hours.
• If the actual indirect material costs are less than the standard or projected variable overheads, then the variation in irregular overhead expenditure is advantageous.
• A fluctuation in variable overhead expenditure is not desirable if actual expenses exceed projected amounts.