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FACTORY OVERHEAD COST VARIANCE

6 May, 2015 - 17:10

A factory overhead cost variance is decomposed into

  1. factory overhead volume variance (which is primarily affected by production being below 100% of capacity), and
  2. factory overhead spending or controllable variance (which is capturing differences in the overhead amount itself).

Analysis of factory overhead variances is more difficult than other variances because overhead, being by nature fixed, is less under management's control, and because overhead is made of many different types of expenses. Since changes in levels of production are critical in this variance, flexible budgets are especially useful.