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My text says: ” if variable OH cost changes, not as a result of a change in direct labor hours, but as a result of a change in the production volume it is not possible to calculate the sub-variances: expenditure and efficiency”
cant understand this: is he saying that if actual production is different from budgeted production then we cant have the sub-vars?
production volume is hardly ever the same as budgeted so that means sub-vars cant ever be calculated..!!!
pls shed light on my confusion
thank u
No no.
There will be a variable overhead variance – the difference between the actual cost, and the standard cost of the actual production.
However, usually we then analyse this variance into an expenditure variance and an efficiency variance. All the text is saying is that we can only do that if the variable overheads change with labour hours. They may change for other reasons in which case we cannot split it into efficiency and expenditure.
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