The formula for the variable overhead efficiency variance is: (Actual Activity Level of VOH Application Base actually used ? Standard Activity Level of application base allowed for actual output) × Standard Application Rate. Overhead is usually applied on the basis of some activity such as machine hours or direct labor hours. It is usually applied on the basis of the amount of that activity (machine hours, direct labor hours) that is allowed according to the standard for the actual output, not the actual amount of hours used. If overhead is applied instead on the basis of actual units of output, overhead will be applied on the basis of actual activity, not the standard activity allowed . Therefore, if overhead is applied on the basis of actual units of output, there will be no difference between the actual activity level (the first number in the parentheses in the formula) and the activity level used to apply the overhead (the second number in the parentheses in the formula), and so the variance will be equal to zero.
The formula for the variable overhead efficiency variance is: (Actual Activity Level of VOH Application Base actually used ? Standard Activity Level of application base allowed for actual output) × Standard Application Rate. If overhead is applied on the basis of actual units of output, there will be no difference between the actual activity level (the first number in the parentheses in the formula) and the activity level used to apply the overhead (the second number in the parentheses in the formula), so the variance will be neither favorable nor unfavorable.
The formula for the variable overhead efficiency variance is: (Actual Activity Level of VOH Application Base actually used ? Standard Activity Level of application base allowed for actual output) × Standard Application Rate. If overhead is applied on the basis of actual units of output, there will be no difference between the actual activity level (the first number in the parentheses in the formula) and the activity level used to apply the overhead (the second number in the parentheses in the formula). The direct labor efficiency variance is (Actual Quantity of Direct Labor Hours Used ? Standard Quantity of Direct Labor Hours Allowed for the Actual Output) × Standard Labor Rate per Hour. The actual quantity and the standard quantity of direct labor hours are different amounts, so there will be no connection between the direct labor efficiency variance and the variable overhead efficiency variance. See the correct answer for a more complete explanation.
The formula for the variable overhead efficiency variance is: (Actual Activity Level of VOH Application Base actually used ? Standard Activity Level of application base allowed for actual output) × Standard Application Rate. If overhead is applied on the basis of actual units of output, there will be no difference between the actual activity level (the first number in the parentheses in the formula) and the activity level used to apply the overhead (the second number in the parentheses in the formula), so the variance will be neither favorable nor unfavorable.
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