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Home Standard Costing and Variance Analysis Overhead Controllable Variance
 
 

Overhead Controllable Variance:

Definition and Explanation:

The controllable variance is the difference between actual expenses incurred and the budget allowance based on standard hours allowed for work performed. This variance may be favorable or unfavorable.

If the actual factory overhead is more than the budget allowance based on standard hours allowed for work performed, the variance is called unfavorable controllable variance.

If the actual factory overhead is less than the budget allowance based on standard hours allowed for work performed, the variance is called favorable controllable variance.

Overhead controllable variance is calculated when overall or net overhead variance is further analyzed using two variance method. Other variance that is calculated in two variance method is volume variance.

Formula:

Following formula is used for the calculation of this variance:

Controllable variance = Actual Factory Overhead - Budgeted Allowance Based on Standard Hours Allowed

Example:

From the following data calculate factory overhead controllable variance:

Actual overhead   $7,384
Actual hours used   3,475
Units produced during the period   850
Standard hours for one unit   4
Standard factory overhead rate:    
     Variable

$1.20

 
     Fixed

$0.80

$2.00
 
 
Normal Capacity in labor hours   4000 hours

Solution:

Actual factory overhead   $7,384
Budgeted allowance based on standard hours allowed:    
   Fixed expenses budgeted $3,200  
   Variable expenses (3,400* standard hours allowed $1.20 variable overhead rate) 4,080 $7,280
 

Controllable variance   $104 unfav
   
*Standard hours allowed = Units produced during the period Standard time allowed for on unit
 3,400 = 850 units 4 hours    

This variance consists of variable expense only and can also be computed as follows:

Actual variable expense:    
   Actual overhead $7,384  
   Fixed expenses budgeted (4000 0.80) $3,200 $4,184
 
 
Variable expenses for standard hours allowed (3,400* $1.20)   4,080
   
Controllable variance   $104 unfav
   

Who is Responsible For Controllable Variance?

The controllable variance is the responsibility of the department managers to the extent that they can exercise control over the costs to which the variances relate.

Relevant Articles:

Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing

 

 

 

 

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