Overhead Variance Analysis

Question 1

What are the complications of O/H analysis?

Answer 1

• Separate variances must be calculated for variance O/H and fixed O/H

Applied O/H costs will change sole on driver O/H consumption and do not represent true changes in O/H consumption.

• Only one O/H variances are controllable by production supervisor

Question 2

Variable O/H varies with level of production?

Answer 2

TRUE!

The variances reflect both difference in:

• Unit cost of variable O/H
• Quantities of variable O/H used

Spending variances are calculated in a manner similar to rate-type variances.

Efficiency variances are calculated in a manner similar to quantity-type variances

Question 3

What is spending variance?

Answer 3

Variance due to price changes in indirect material, labor, and poor budget estimates

• Controllable variance

Question 4

What is efficiency variance?

Answer 4

Variance due to variations in efficiency of the base used to allocate O/H (i.e. direct labor hours, direct labor dollars)

• Often a controllable variance

Question 5

What is the budget (spending) variance?

Answer 5

variance due to price differences in the total fixed O/H costs and the budget.

The difference between the estimated fixed O/H and the actual total fixed O/H.

Is controllable

Question 6

What is the four-way variance analysis?

Answer 6

Comprised of the two variable O/H variances (efficiency and variable spending) and the two fixed O/H variances as desired in this lesson.

• Most detailed

Question 7

What is the three-way analysis?

Answer 7

Combines the variable O/H spending variance and the fixed O/H budget variance into a single variance.

Often referred to as the “total spending variance”

Question 8

What at the two-way variance method?

Answer 8

Combines the total O/H spending variance and the fixed O/H spend variance into a single variance

of ten referred to as the “controllable or flexible budget variance”