Variable overhead varies in proportion to the level of output.

Therefore,
irrespective of the volume of production, the standard variable overhead rate
remains the same. Hence, as compared to computation of fixed overhead cost
variances; computation of variable overhead variances is quite simple. In fact,
computation method of variable overhead variances is similar to material & labour
cost variances.

Variable Overhead Cost Variance:

The difference between the standard variable overhead for actual output
(i.e. recovered variable overhead) & the actual variable overhead incurred is known
as the variable overhead cost variance.

The formula is:

Variable overhead recovered – Actual variable overhead

The variable overhead variance can be bifurcated into variable overhead

expenditure variance & variable overhead efficiency variance.

Variable Overhead Expenditure Variance:

The difference between the amount of variable overhead that has been
actually incurred & the variable overhead which should have been incurred for the
actual hours that has been worked is known as the variable overhead expenditure
variance.
The formula is:
Actual variable overhead – Standard variable overhead

Where, Standard Overhead = Actual hours * Standard rate per hour

Or, Standard output of actual hours * Standard rate per
unit.

Variable Overhead Efficiency Variance:

The difference between the amounts of variable overhead that has been
recovered & the amount which would have been recovered had been the actual hours
worked at standard efficiency.

The formula is:

Standard variable overhead rate per hour * (Actual hours – Standard hours of
actual production)
Or, Standard rate per unit * (Standard output - Actual output)
Or, Variable overhead recovered – Standard variable overhead.

Relationship between the variances:

Variable overhead cost variance = Expenditure variance + Efficiency

variance