Variable overhead efficiency variance
The variable overhead efficiency variance values the difference between standard activity for actual output and actual activity at the standard variable overhead rate. If labour hours are the absorption base, it follows the same hours difference as labour efficiency but uses the overhead rate. This assumes overhead varies with that activity; an unsuitable base can create a misleading efficiency interpretation. Identify the driver and maintain a consistent standard.
Worked example
Standard hours for actual output are 900, actual hours 1,000 and standard variable overhead $3 per hour. Efficiency variance is (900 − 1,000) × $3 = $300 adverse.
Common mistake
A labour-hour efficiency variance may not diagnose electricity efficiency when electricity is mainly driven by machine hours.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |