Total overhead variance
Total overhead variance is the difference between overhead absorbed into production at the standard rate and actual overhead incurred, split further into expenditure and volume elements.
See it move
A factory absorbs €99,000 of overhead at its standard rate for the actual hours produced, but actual overhead incurred was €104,500. The total overhead variance is €99,000 minus €104,500, a €5,500 adverse result — overhead was under-absorbed because spending ran ahead of what production absorbed.
The formula
Variables
- Total overhead variance (€)
- Overhead absorbed into production at the standard rate, for the standard hours allowed for actual output (€)
- Actual overhead incurred during the period (€)
A positive result is favourable (overhead was over-absorbed); a negative result is adverse (overhead was under-absorbed).
Check yourself
A workshop's standard overhead absorption rate is €25 per labour hour. Budgeted hours for the period were 3,000. Actual hours worked were 3,100. The standard hours allowed for the actual output achieved were 3,200. Actual overhead incurred was €76,000. What is the total overhead variance?