Overhead Controllable
Variance:
Definition and Explanation:
The
controllable variance is the difference between
actual expenses incurred and the budget allowance
based on standard hours allowed for work performed.
This variance may be favorable or unfavorable.
If the
actual factory overhead is more than the budget
allowance based on standard hours allowed for work
performed, the variance is called unfavorable
controllable variance.
If the
actual factory overhead is less than the budget
allowance based on standard hours allowed for work
performed, the variance is called favorable
controllable variance.
Overhead controllable variance is calculated when
overall or net overhead variance is further
analyzed using two variance method. Other variance
that is calculated in two variance method is
volume variance.
Formula:
Following formula is used for the calculation of
this variance:
Controllable variance = Actual Factory
Overhead - Budgeted Allowance Based on
Standard Hours Allowed |
Example:
From the following
data calculate factory overhead controllable
variance:
Actual
overhead |
|
$7,384 |
Actual
hours used |
|
3,475 |
Units
produced during the period |
|
850 |
Standard hours for one unit |
|
4 |
Standard factory overhead rate: |
|
|
Variable |
$1.20 |
|
Fixed |
$0.80 |
$2.00 |
|
|
|
Normal
Capacity in labor hours |
|
4000 hours |
Solution:
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 |
|
$104 unfav |
|
|
|
*Standard
hours allowed = Units produced during
the period × Standard time allowed for
on unit |
3,400
= 850 units × 4 hours |
|
|
This variance
consists of variable expense only and can also be
computed as follows:
Actual
variable expense: |
|
|
Actual overhead |
$7,384 |
|
Fixed expenses budgeted (4000 × 0.80) |
$3,200 |
$4,184 |
|
|
|
Variable
expenses for standard hours allowed
(3,400*×
$1.20) |
|
4,080 |
|
|
|
Controllable variance |
|
$104 unfav |
|
|
|
Who is Responsible For Controllable Variance?
The 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. Relevant Articles:
|