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:
*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.
