Variance Analysis

The direct labor variance is the difference between the actual labor hours used for production and the standard labor hours allowed for production on the standard labor hour rate. From the definition, you can easily derive the formula: Direct Labor Efficiency Variance = (Actual Labor Hours – Budgeted Labor Hours) Labor efficiency variance compares the […]

Definition: Fixed overhead spending or expenditure variance is the difference between actual fixed overheads incurred by the company and the budgeted fixed overheads that were estimated by the company before the year started. It can be calculated as follows: Actual overheads – budgeted overheads = Fixed overhead spending variance Analysis: A favorable fixed overhead spending

Variable overhead efficiency variance: A variable overhead efficiency variance exhibits the difference between budgeted variable overheads and applied variable overheads. In other words, it is the difference between standard hours and actual hours worked at the standard variable overhead rate. It helps identify the cost saved or incurred by the company due to efficiency or