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
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?