3. Structural Relationship Chart
  Actual Hours Paid × Actual Rate
               │
               ├─> [ LABOR RATE VARIANCE ]
               â–¼
  Actual Hours Paid × Standard Rate
               │
               ├─> [ IDLE TIME VARIANCE ]
               â–¼
  Actual Hours Worked × Standard Rate
               │
               ├─> [ LABOR EFFICIENCY VARIANCE ]
               â–¼
  Standard Hours Allowed × Standard Rate

Lesson 9.5: Variable Manufacturing Overhead Variances
1. Introduction and Objectives
Variable manufacturing overheads (VMOH) encompass indirect factory expenditures that scale with activity volume, such as machine utilities or indirect materials. This lesson defines how to analyze VMOH spending and efficiency.
2. Formula Architecture
Variable overhead variances are typically allocated based on direct labor hours or machine hours:
  • Variable Overhead Spending (Rate) Variance: Measures deviations between the actual variable overhead costs incurred and what should have been spent based on the actual hours worked.

    VMOH Spending Variance = Actual VMOH Costs Incurred − (Actual Activity Hours × Standard VMOH Rate per Hour)
  • Variable Overhead Efficiency Variance: Measures the indirect cost impact of production efficiency. If production takes more hours than standard benchmarks allow, it will naturally consume more variable overhead resources like factory power.

    VMOH Efficiency Variance = (Actual Activity Hours × Standard VMOH Rate) − (Standard Hours Allowed × Standard VMOH Rate)

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