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Home Standard Costing and Variance Analysis Overall or Net Factory Overhead Variance
 
 

Overall or Net Factory Overhead Variance:

Jobs or processes are charged with with costs on the basis of standard hours allowed multiplied by the standard factory overhead rate. The standard hours allowed figure is determined by multiplying the labor hours required to produce one unit (the standard labor hour per unit) times the actual number of units produced during the period. The units produced are the equivalent units of production for the department factory overhead being analyzed. At the end of each month, overhead actually incurred is compared with the expenses charged into process using the standard factory overhead rate. The difference between these two figures is called overall factory overhead variance or net factory overhead variance.

Example:

From the following data calculate factory overhead overall (net) variance:

Actual overhead $7,384
Actual hours used 3,475 hours
Units produced during the period 850
Standard hours for one unit 4
Standard factory overhead rate $2.00

Solution:

The overall or net factory overhead variance is computed below:

Actual overhead $7,384
Overhead charged to production (3400* standard hours allowed $2 standard overhead rate) 6,800
 
Overall (or net) overhead variance. $584 unfav.
 
*850 equivalent units produced 4 standard direct labor hours per unit of production  

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

  • The two variance method

  • The three variance method and

  • The four variance method

Relevant Articles:

Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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