what is variable overhead efficiency variance
variable overhead efficiency variance refers to the difference between the true time it takes to manufacture a product and the time budgeted for it as well as the impact of that difference it arises from variance in productive efficiency for example the number of labor hours taken to manufacture a certain amount of product may differ significantly from the standard or budgeted number of hours variable overhead efficiency variance is one of the two components of total variable overhead variance the other being variable overhead spending variance understanding variable overhead efficiency variancein numerical terms variable overhead efficiency variance is defined as voev alh blh hourly rate where voev variable overhead efficiency variance alh actual labor hours blh budgeted labor hours hourly rate rate for standard variable overhead begin aligned text voev text alh text blh times text hourly rate textbf where text voev text variable overhead efficiency variance text alh text actual labor hours text blh text budgeted labor hours text hourly rate text rate for standard variable overhead end aligned voev alh blh hourly ratewhere voev variable overhead efficiency variancealh actual labor hoursblh budgeted labor hourshourly rate rate for standard variable overhead the hourly rate in this formula includes such indirect labor costs as shop foreman and security if actual labor hours are less than the budgeted or standard amount the variable overhead efficiency variance is favorable if actual labor hours are more than the budgeted or standard amount the variance is unfavorable example of variable overhead efficiency varianceconsider an example of a widget manufacturing plant where the rate for standard variable overhead to account for indirect labor costs is estimated at 20 per hour assume that the standard number of hours required to manufacture 1 000 widgets is 2 000 hours however the company actually took 2 200 hours to manufacture 1 000 widgets in this case the unfavorable variable overhead efficiency variance is 2 200 2 000 x 20 4 000 the variance is unfavorable because the company took more time than budgeted to produce the 1 000 widgets if the company had instead taken 1 900 hours to manufacture 1 000 widgets the variance would be favorable 2 000 