Variable-overhead efficiency variance
Variable-overhead efficiency variance is the cost of using more or fewer hours than standard for actual output, at the standard variable-overhead rate. It captures driver efficiency, not the price of overhead inputs.
FrameworkStandard costing and variance analysis
What it is
See it move
Producing 500 units should take 1,500 standard hours at 3 hours each; the workforce actually used 1,600 hours — 100 hours too many. At the standard variable-overhead rate of €4 per hour, that gap costs an extra €400, an adverse efficiency variance. The figure isolates how efficiently time was used, not what each hour cost — that effect belongs to the spending variance.
The formula
Variables
- Standard hours allowed for actual output (standard hours per unit × actual units produced)
- Actual hours of the activity base worked during the period
- Standard variable overhead rate per activity hour (€ per hour)
Adverse when AH > SH; extra hours drive extra variable overhead even when the cost per hour equals the standard rate
Check yourself
Standard variable overhead is €4 per direct labour hour, with 2 standard hours per unit. Actual output was 500 units, produced using 1,150 actual direct labour hours. What is the variable-overhead efficiency variance?