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Alternative to Total Overhead Variances
There is an easier approach to overhead variances. In this approach, the overheads are NOT sub-divided into their fixed and variable elements. Hence the specified variances are calculated as:
The variances indicated above are defined as follows:
1. Overhead Total Variance: that is the difference between the standard overhead cost specified for the production achieved and the actual cost incurred.
2. Overhead Expenditure Variance: such is the difference between the budgeted overheads and the actual overheads expenditure.
3. Overhead Efficiency Variance: such is the difference between the standard overhead rate for the actual hours taken and the standard overhead rate for the production achieved.
4. Overhead Volume Variance: such is the difference between the flexed budget allowance for the actual hours taken and the standard overhead cost of the actual hours taken.
Variable Costs Are costs such raise or fall proportionately along with the level of activity that is such portion of the cost of an activity which changes along with the leve
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