variable overhead spending variance

Dictionary of Accounting Terms for: variable overhead spending variance
variable overhead spending variance

difference in actual and budgeted variable overhead costs that results from price changes in indirect materials and indirect labor and insufficient control of costs of specific overhead items. Variable overhead spending variance = actual overhead costs – (standard rate ¥ actual hours of labor used).

For example, assume that the standard variable overhead cost per unit of product A is 2.5 hours ¥ $3.00 = $7.50. Assume further that during the month of March the company recorded 4500 hours of direct labor time. The total actual variable overhead cost for the month was $13,750. The company produced 2000 units of product A during the month. The variable overhead spending variance is $13,750 – ($3.00 ¥ 4500 hours) = $250, which is unfavorable since actual overhead spent exceeded the budgeted amount. This may be the result of unavoidable price increases in indirect materials and indirect labor.

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