Variable Overhead Cost Variance (VOHV):

This is the difference between standard variable overheads for actual production and
the actual variable overheads.

VOHV = SC – AC

It can be subdivided into VOH expenditure variance, and VOH efficiency variance.
VOH expenditure variance is the difference between the standard variable overheads
for the actual hours worked, and the actual variable overheads incurred.

The formula is as follows:

VOH Exp. Variance = AVOH – SVOH for actual hours worked. VOH efficiency
variance arises when the actual output produced differs from the standard output for
actual hours worked. It is a measure of extra overhead (for saving) incurred solely
because of the efficiency shown during the actual hours worked.

The formula is as follows:

VOH efficiency variance

= (SVOH for actual hours worked) – (SVOH for actual output)

VOH = VOH exp. variance + VOH efficiency variance.

Example 1:

Fixed Overheads Cost Variance (FOHCV):

This is the difference between the standard fixed overheads for actual output and
actual fixed overheads. The reasons for the variance are over absorption or under-
absorption of overheads for the actual production.

The budgeted production may be different from the actual production for the actual
overheads incurred. The major sub-divisions of FOHCV are FOH expenditure
variance and FOH volume variance.

The formula for FOHCV is as follows:

FOHCV = AFOH – SFOH for actual production
If the AFOH is less than the SFOH, the variance is favorable, and vice versa.

FOH Expenditure Variance (FOHEV):

This is the difference between AFOH and BFOH. FOHEV = AFOH – BFOH

If the actual is greater than the budgeted, the variance is adverse, and vice versa.

FOH Volume Variance (FOHVV):

This is the difference between the budgeted fixed overheads and the standard fixed
overheads absorbed on actual production.

The formula is as follows:

FOHVV = BFOH – SFOH on actual production. If the BFOH is greater than the
SFOH on actual production, the variance is adverse and vice versa.

Example 2:
From the following data, calculate FOH cost variances:
Budgeted hours: 10,000; Budgeted Output: 5,000 units

Budgeted FOH: Rs. 3,000

Actual hours: 12,000; Actual Output: 4,800 units; Actual FOH: Rs. 3,600

Solution:

Advanced Variances:
FOHV may be classified into the sub-variances as follows:
(a) Calendar Variance,

(b) Capacity variance and

(c) Efficiency variance.

(a) Calendar variance:

This is a part of capacity variance. It arises only when the actual number of working
days differs from the budgeted working days. It is an indicator of variations in
overhead recovery of different months due to changes in number of working days.

The formula is as follows:

Calendar variance = BFOH – SFOH for revised budgeted hours. Revised budgeted
hours are equivalent to the standard hours for actual working days. If BFOH is
greater than the SFOH, the variance is adverse, and vice versa.

(b) Capacity variance:

This is the difference between the SFOH for revised budgeted hours and SFOH for
actual hours worked. This may arise due to strikes, lockouts, breakdown of
machinery, short supply of labour, absenteeism, etc. Overtime, change in number of
shifts etc., may also contribute towards this variance. It is an indicator of the degree
of utilization of available capacity.

The formula is as follows:

Capacity variance:
= SFOH for RBH – SFOH for AH = SFOH (RBH – AH)

If the SFOH for RBH is greater than for AH, the variance is adverse, and vice versa.

(c) Efficiency variance:

This variance arises when the actual production differs from the standard output for
actual hours worked. It is the difference between the SFOH recovered on actual
output and SFOH for actual hours worked.

The major causes for this variance are lack of proper supervision and inspection,
improper handling of materials and machines, variation in production methods and
changes in efficiency of machine operations, etc.

The formula is as follows:

Efficiency variance = SFOH for AH worked – SFOH for actual output.

If the SFOH for actual output is greater, the variance is favorable and vice versa.
Example 3: