Overhead spending variance is the difference
between actual expenses incurred and the budgeted
allowance based on actual hours worked.
If
actual expenses incurred are more than budgeted
allowance based on actual hours worked, an
unfavorable spending variance occurs.
If
actual expenses incurred are less than budgeted
allowance based on actual hours worked, a
favorable spending variance occurs.
Overhead spending variance is calculated when
overall or net overhead variance is further
analyzed using three variance method. Other two variances
that are calculated in three variance method are
overhead idle capacity variance and overhead
efficiency variance.
Formula:
Following formula is used for the calculation of
this variance:
Spending
variance = Actual factory overhead -
Budgeted allowance based on actual hours
worked
Example:
From the following
data calculate factory overhead spending
variance:
Actual
overhead
$7,384
Actual
hours worked
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 actual hours worked:
Fixed expenses budgeted
$3,200
Variable expenses (3,475*
actual hours worked × $1.20 variable
overhead rate)
4,170
$7,370
Spending
variance
$14 unfav
This variance
consists of variable expense only and can also be
computed as follows:
Actual
variable expenses ($7,384 - $3,200)
$4,184
Allowed
variable expenses for actual production
4,170
Spending
variance
$14 unfav
Who is Responsible For Spending Variance?
The spending
variance is the responsibility of the department
manager, who is expected to keep actual expenses
within the budget.
