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overhead efficiency variance


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In a standard costing system, that part of the overhead total variance that arises from the more or less efficient use of the time available to carry out the actual production. It compares the actual time taken to carry out an activity with the standard time allowed and values the difference at the standard overhead absorption rate per hour (fixed or variable). The resultant adverse or favourable variance is the amount by which the budgeted profit is affected by virtue of the overhead cost over- or under-recovered due to efficiency. The formula for this variance is:(standard hours allowed for production – actual hours taken) × standard overhead absorption rate per hour (fixed or variable).

(standard hours allowed for production – actual hours taken) × standard overhead absorption rate per hour (fixed or variable).

See also fixed overhead efficiency variance; variable overhead efficiency variance.

Subjects: Accounting.


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