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Factory Overhead Controllable Variance:

Learning Objective of the article:

  1. Define and explain factory overhead controllable variance.
  2. How FOH controllable variance is calculated?
  3. What are the reasons / causes of unfavorable controllable variance?


  1. Definition
  2. Formula of factory overhead controllable variance
  3. Example
  4. Reasons / causes of unfavorable controllable variance


Factory overhead controllable variance is the difference between actual expenses incurred and the budget allowance based on standard hours allowed for work performed.

Factory overhead controllable variance is the responsibility of the department managers to the extent that they can exercise control over the costs to which the variances relate.

Formula of Factory Overhead Controllable Variance:

Following formula/equation is used for the calculation of controllable variance:

[Controllable Variance = Actual factory overhead Budgeted allowance based on standard hours allowed*]

[*Fixed expenses budgeted + variable expenses (standard hours allowed for actual production   variable overhead rate)]


Following is the flexible budget of a department of a manufacturing company. The data from this flexible budget is used to calculate all variances relating to factory overhead.

Department 3
Monthly Flexible Budget

Capacity 80% 90% 100%  
Standard production 800 1,000 1,200  
Direct labor hours 3,200 4,000 4,800  
Variable factory overhead:        
Indirect labor $1,600 $2,000 $2,400 $0.50 / dlh
Indirect materials 960 1,200 1,440 $0.30
Supplies 640 800 960 $0.20
Repairs 480 600 720 $0.15
Power and light 160 200 240 $0.05
  ----------- ----------- ----------- -----------
Total variable factory overhead $3,840 $4,800 $5,760 $1.20 per dlh
  ====== ====== ====== ======
Fixed factory overhead:        
Supervisor $1,200 $1,200 $1,200  
Depreciation on machinery 700 700 700  
Insurance 250 250 250  
Property tax 250 250 250  
Power and light 400 400 400  
Maintenance 400 400 400  
  ----------- ----------- -----------  
Total fixed factory overhead $3,200 $3,200 $3,200 $3,200 per month
  ----------- ----------- ----------- ======
Total factory overhead $7,040 $8,000 $8,960 $3,200 per month
+ $1.20 per dlh
  ====== ====== ====== ======

Following data is also provided:

Actual factory overhead is $7,384. Actual production is 850 units of finished product. Actual hours used are 3,475 hours. 4 standard hours are allowed to complete a unit of finished product.

Required: Calculate factory overhead controllable variance.

Calculation of Standard Overhead Rate:

Assuming that 90% column represents normal capacity, the standard overhead rate is computed as follows:

Total factory overhead / Direct labor hours

= $8,000 / 4,000

= $2 per standard direct labor hour

At 90% capacity level, the rate consists of:

Total variable factory overhead / Direct labor hours

= $4,800 / 4,000

= $1.20 variable factory overhead rate

Total fixed factory overhead / Direct labor hours

= $3,200 / 4,000

= $0.80 fixed factory overhead rate

Total factory overhead rate at normal capacity:

($1.20 + $0.80) = $2.00

Calculation of Controllable variance:

Actual factory overhead   $7,384
Budgeted allowance based on standard hours allowed:    
     Fixed expenses budgeted $3,200  
     Variable expenses (3,400 standard hours allowed  $1.20 variable overhead rate) 4,080  
  ---------- 7,280
Controllable variance   $104unfav.

Factory overhead controllable variance consists of variable expenses only and can also be calculated as follows:

Actual variable expenses ($7,384 actual factory overhead $3,200 of fixed expenses budgeted) $4,184
Variable expenses for standard hours allowed $4,080
Controllable variance $104 unfav.

Reasons / Causes of Unfavorable Controllable Variance:

Possible reasons / causes for the unfavorable controllable variance are:

  1. Indirect materials were purchased from a different supplier with higher costs.
  2. More Indirect materials were used due to waste.
  3. Indirect labor rates were higher due to a change in personnel or higher negotiated raises than budgeted.
  4. Fixed overhead costs were more than budgeted.
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You may also be interested in other articles from "standard costing and variance analysis" chapter

  1. Standard Costs and Management By Exception
  2. Setting Standard Costs - Ideal Versus Practical Standards
  3. Direct Materials Price and Quantity Standards
  4. Direct Materials Price Variance
  5. Direct Materials Quantity Variance
  6. Direct Labor Rate and Efficiency Standards
  7. Direct Labor Rate/Price Variance
  8. Direct Labor Efficiency | Usage | Quantity Variance
  9. Manufacturing Overhead Standards
  10. Overall or net factory overhead variance.
  11. Controllable variance
  12. Volume variance
  13. Spending variance
  14. Idle capacity variance
  15. Efficiency variance
  16. Spending variance
  17. Variable efficiency variance
  18. Fixed efficiency variance
  19. Idle capacity variance
  20. Mix and Yield Variance - Definition and Explanation
  21. Materials Mix and Yield Variance
  22. Labor Yield Variance
  23. Factory Overhead Yield variance
  24. Variance Analysis and Management By Exception
  25. Managerial importance and usefulness of variance analysis
  26. Advantages and Disadvantages of Standard Costing System
  27. Standard Costing Discussion Questions and Answers
  28. Standard Costing and Variance Analysis Formulas
  29. Standard Costing and Variance Analysis Problems and Solution
  30. Standard Costing and Variance Analysis Case Study


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