How is the Variable Manufacturing Overhead Efficiency Variance Calculated?

In just about every industry, one of the largest expenses is going to be from the hours that employees are working and the amount of time a machine is dedicated to a product. Calculating how many hours of work a project will require can be difficult, but it is very important for being able to accurately estimate how much something will cost. There are many factors that go into this type of calculation, with one of the most important being the variable overhead efficiency variance.

Calculating the variable manufacturing overhead efficiency variance can be a challenge, but it will give you a good idea of what types of expenses you need to plan for on a project. This process looks at the difference between the actual budgeted hours worked and the planned hours worked for a given project. When everything goes perfectly according to plan (which is almost never the case) the actual number of hours worked on a project will match up with the planned number of hours. When this is not the case, you will want to know what the variance is.

Ideally, you would like the actual hours worked to be fewer than the budgeted hours, as this will mean that the costs associated with this will come in under budget. To calculate the variable manufacturing overhead efficiency variance, you take your standard overhead rate and multiply it by the actual hours worked minus the planned (or standard) hours worked. This will give you the results you need so you can determine how efficient your project has been. It will also help you to more accurately plan for future projects.