STANDARD COSTING - FACTORY OVERHEAD VARIANCE ANALYSIS

Two Variance Method Three Variance Method Four Variance Method

1. Controllable Variance 1. Spending Variance 1. Spending Variance

Actual Factory Overhead 7,384 Actual Factory Overhead 7,384 Actual Factory Overhead 7,384
Budget Allowance based on Standard Hours Allowed Budget Allowance based on Actual Hours Allowed Budget Allowance based on Actual Hours Allowed
for actual output for actual output for actual output
Fixed Overhead 3,200 Fixed Overhead 3,200 Fixed Overhead 3,200
variable OH (3,400 x 1.2) 4,080 variable OH (3,475 x 1.2) 4,170 variable OH (3,475 x 1.2) 4,170
7,280 7,280 7,370 7,370 7,370 7,370
Unfavorable Variance 104 Unfavorable Variance 14 Unfavorable Variance 14

2. Volume Variance 2. Idle Capacity Variance 2. Idle Capacity Variance

Budget Allowance based on Standard Hours Allowed Budget Allowance based on Actual Hours Allowed Budget Allowance based on Actual Hours Allowed
for actual output for actual output for actual output
Fixed Overhead 3,200 Fixed Overhead 3,200 Fixed Overhead 3,200
variable OH (3,400 x 1.2) 4,080 variable OH (3,475 x 1.2) 4,170 variable OH (3,475 x 1.2) 4,170
7,280 7,280 7,370 7,370 7,370 7,370

Overhead charged to production Overhead charged to production Overhead charged to production

(3400 x $2) 6,800 (3475 x $2) 6,950 (3475 x $2) 6,950
Unfavorable Variance 480 Unfavorable Variance 420 Unfavorable Variance 420

3. Efficiency Variance 3. Variable Efficiency Variance

FACTORY OVERHEAD VARIANCE
Overhead charged to production Budget Allowance based on Actual hours worked
Actural Overhead Expenses for the period 7,384 (3475 x $2) 6,950 Fixed Overhead 3,200
Overhead charged to production variable OH (3,475 x 1.2) 4,170
Factory overhead charged to production (3400 x $2) 6,800 7,370 7,370
Standard Hours x Standard Rate Unfavorable Variance 150 Budget Allowance based on Standard hours allowed
3400 * 2 6,800 Fixed Overhead 3,200
Unfavorable FOH Variance 584 variable OH (3,400 x 1.2) 4,080
7,280 7,280
The net overhead variance of Rs. 584 is further Unfavorable Variance 90
be analyzed / investigated by using TWO, THREE
and FOUR Variances Methods. 4. Fixed Efficiency Variance

Actual Hours x Fixed OH rate 3475 * 0.8 2,780

Standard Hours x Fixed OH rate 3400 * 0.8 2,720

Unfavorable Variance 60