Overall or Net Factory Overhead Variance

Overall or Net Factory Overhead Variance:

Definition:

Overall or net factory overhead variance is the difference between actually incurred factory overhead and expenses charged into process using the standard factory overhead rate.

Formula of Overall or Net Factory Overhead Variance:

Overall or net overhead variance is calculated by the following formula:

[Actual overhead – Overhead charged to production]

Example:

At the end of a month the data for a department are as follows:

Actual overhead $7,384
Units produced 850 units
Actual hours used 3,475 hours
Standard hours allowed her unit of product 4.00 hours

Calculate net factory overhead variance.

Calculation

Actual departmental overhead $7,384
Overhead charged to production: 3,400 standard hours allowed × $2 standard overhead rate 6,800
———-
Overall or net overhead variance $584 unfav.
======

This unfavorable overall overhead variance needs further analysis to reveal detailed causes for the variance and to guide management toward remedial action. This analysis is made by using:

The two variance method:

  1. Controllable variance
  2. Volume variance

The three variance method:

  1. Spending variance
  2. Idle capacity variance
  3. Efficiency variance

The four variance method:

  1. Spending variance
  2. Variable efficiency variance
  3. Fixed efficiency variance
  4. Idle capacity variance

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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