The variable overhead spending variance is calculated as follows: (Standard Application Rate ? Actual Application Rate) × Actual Quantity. There is no connection between the variable overhead spending variance and the direct labor efficiency variance.
The labor efficiency variance is calculated as follows: (Actual Hours ? Standard Hours for Actual Output) × Standard Rate. An unfavorable direct labor efficiency variance means that more hours were actually spent than the standard allowed for the actual output. This could happen due to an inefficiency on the part of employees, downtime, or poor quality of raw materials that required excessive rework. The materials efficiency or usage variance is calculated as follows: (Actual Quantity ? Standard Quantity for Actual Output) × Standard Price. An unfavorable materials usage variance indicates that more materials were used than allowed for the actual level of output. These two variances may be interrelated, as working on more materials than they were supposed to caused the workers to spend more time than they should have according to the standard for actual output.
The variable overhead spending variance is calculated as follows: (Actual Application Rate ? Standard Application Rate) × Actual Quantity. There is no connection between the variable overhead spending variance and the direct labor efficiency variance.
The fixed overhead volume variance is the difference between the budgeted amount of fixed overhead and the amount of fixed overhead applied (standard rate × standard input for the actual level of output). There is no connection between the fixed overhead volume variance and the direct labor efficiency variance.
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