Variable overhead efficiency variance
Variable overhead efficiency variance quantifies the effect of a change in manufacturing efficiency on variable production overheads. Depending on the automation of the production process it may be expressed in terms of labor hours or machine hours. The basic formula is:
The variable overhead efficiency variance uses data from production and from predictions in order to find difference. If the favorable variance is encountered it can mean that:
- easier to work raw materials were used,
- employees have higher competences,
- more efficient machines were used,
- the plans were prepared badly.
The last is the case in most situations when we are surprised by the results.
- Horngren, C. T., Bhimani, A., Datar, S. M., Foster, G., & Horngren, C. T. (2002). Management and cost accounting. Harlow: Financial Times/Prentice Hall.
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