Overhead spending variance is the difference
between actual expenses incurred and the budgeted
allowance based on actual hours worked.
actual expenses incurred are more than budgeted
allowance based on actual hours worked, an
unfavorable spending variance occurs.
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
Following formula is used for the calculation of
variance = Actual factory overhead -
Budgeted allowance based on actual hours
From the following
data calculate factory overhead spending
produced during the period
Standard hours for one unit
Standard factory overhead rate:
Capacity in labor hours
allowance based on actual hours worked:
Fixed expenses budgeted
Variable expenses (3,475*
actual hours worked × $1.20 variable
consists of variable expense only and can also be
computed as follows:
variable expenses ($7,384 - $3,200)
variable expenses for actual production
Who is Responsible For Spending Variance?
variance is the responsibility of the department
manager, who is expected to keep actual expenses
within the budget.