Variable Production Overhead Variance (VPOH)

Is the difference between the actual variable production

overhead incurred and the applied variable overhead.
Made up of a large number of individual items ( eg:
indirect materials, indirect labour, maintenance,
electricity )

VPOH = SC - AC

Where:
SC Standard Cost
AC Actual Cost
VPOH

+
 VPOH ( Expenditure ) Variance
Is the difference between the actual variable overhead incurred and the
allowed variable overhead based on the actual hours worked.
Measures the aggregate effect of difference between the actual variable
overhead rate (AVOR) and the standard variable overhead (SVOR).
Generally assigned to the Production Department.
Example :
If expenses incurred low, variance = favourable (F)
If expenses incurred higher cost, variance = unfavourable (UF)

Actual variable production overhead - ( AH x SVOR )

@
( AVOR SVOR ) AH

Where :
AH Actual hour

*Normally, the standard overhead rate based on direct labour hour or machine hour
 VPOH ( Efficiency ) Variance
Measures the changes in variable overhead consumption ( occurred
because of efficient or inefficient use of direct labour )
assigned to the production manager

Example :
If more direct labour hours were used, the total variable production overhead
cost will increase and vice versa

( AH SH ) SVOR

Where :
AH Actual hour
SH Standard hour for actual output
SVOR Standard variable production overhead rate
 Fixed Production Overhead Variance

Is the difference between the actual fixed overhead incurred and the applied
fixed overhead.
Example of fixed production overhead costs : factory rent, depreciation,
insurance, production supervisors salary

FPOH Variance = Actual overhead Applied overhead

 +
FPOH FPOH
( Expenditure ) ( Volume )
Variance Variance
 FPOH ( Expenditure ) Variance

Is the difference between the budgeted fixed overhead and the

actual fixed overhead expenditure.
Fixed production overhead is not expected to change when the
activity changes.
Relatively small, because fixed overhead cost is easy to predict.

Example :
When the expenditure amount for fixed overhead < budgeted , variance
is favourable ( F ) . And vice versa..

BFO - AFO

Where :
BFO Budgeted fixed overhead
AFO Actual fixed overhead
 FPOH ( Volume ) Variance
Is the difference between budgeted fixed overhead and applied fixed
overhead.
The variance arises due to the change in the level of output attained.

FPOH ( Volume ) =
Budgeted fixed production overhead Applied fixed production overhead

Standard hours x Standard fixed overhead rate

Standard fixed overhead rate = the predetermined overhead rate

Budgeted fixed overhead

Budgeted basis
 Total Cost Variances

Is the sum of all the variances direct material cost variances, direct labour
cost variances, variable production overhead cost variances and fixed
overhead cost variances.

Total cost variances = MCV + LCV + VPOH + FPOH