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:

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

 

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