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Variable overhead total variance

The variable overhead total variance compares standard variable overhead for actual output with actual variable overhead incurred. Its expenditure and efficiency components reconcile if the same activity basis and cost scope are used. Under favourable-positive convention, total = standard activity for actual output × standard rate − actual overhead. Interpret both the spending rate and the activity driver rather than assuming the whole variance reflects a manager’s spending decisions.

Worked example

Standard hours 900 at $3 give $2,700; actual overhead is $3,200. Total is $500 adverse, comprising $200 adverse expenditure at 1,000 actual hours and $300 adverse efficiency.

Common mistake

Do not use budgeted production hours to value actual output, or add total variance to its components in a profit bridge.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027