Variable Overhead Rate Variance Calculator
Calculation Result
What is Variable Overhead Rate Variance?
Variable overhead rate variance measures the difference between the actual variable manufacturing overhead cost incurred and the standard cost that should have been incurred for the actual hours worked. In simpler terms, it identifies whether you paid more or less per hour for variable overhead (like utilities or supplies) than you planned.
The Formula
Variable Overhead Rate Variance = (AR – SR) × AH
- AR: Actual Rate (Actual Cost / Actual Hours)
- SR: Standard Rate per hour
- AH: Actual Hours Worked
Favorable vs. Unfavorable
- Favorable Variance (F): Occurs when the actual variable overhead cost is lower than the standard cost for the hours worked. This suggests better-than-expected cost control.
- Unfavorable Variance (U): Occurs when actual costs exceed the standard. This might be due to rising energy prices, inefficient use of indirect materials, or unexpected maintenance costs.
Example Calculation
Suppose your factory expected to pay $5.00 per hour for variable overhead (Standard Rate). Last month, your staff worked 1,200 hours and you spent a total of $6,500 on variable overhead costs.
- Actual Hours (AH): 1,200
- Standard Cost (AH × SR): 1,200 × $5.00 = $6,000
- Actual Cost: $6,500
- Variance: $6,500 – $6,000 = $500 Unfavorable
This means you spent $500 more than the budget allowed for those specific hours worked.