Definition of Variable Overhead

Variable overhead efficiency variance is the product of standard variable overhead rate and the difference between the standard units allowed of the variable overhead application base and actual units used of the variable overhead application base.

Explanation of Variable Overhead

Variable overhead efficiency variance measures the efficiency of production department in converting inputs to outputs. Variable overhead efficiency variance is positive when standard hours allowed exceed actual hours.

When actual hours exceed standard hours allowed, the variance is negative and unfavorable implying that production process was inefficient.