What is 'Variable Overhead Spending Variance'

Variable overhead spending variance is the difference between actual variable overhead based on costs for the indirect material involved in manufacturing, and standard variable overhead based on the budgeted costs. Variable overhead spending variance arises from the difference in the costs of indirect material compared to budgeted costs. It is favorable if actual costs of indirect material – for example, paint and consumables such as oil and grease – are lower than standard variable overhead. It is unfavorable if actual costs are higher than budgeted costs.

BREAKING DOWN 'Variable Overhead Spending Variance'

Variable overhead spending variance is the result of a difference between the actual costs of indirect material compared to the actual costs. Variable overhead spending variance is one of the two components of total variable overhead variance. The other component is variable overhead efficiency variance.

Example of Variable Overhead Spending Variance

For example, in the case of a widget manufacturer, the grease for the widget press and the widget paint and widget press tuner actually end up costing $5,000 less than budgeted, the variable overhead spending variance would be a favorable $5,000. Then, if variable overhead spending variance is favorable $5,000 (because actual indirect materials costs were lower than budgeted) and variable overhead efficiency variance is unfavorable $4,000, then total variable overhead variance is favorable $1,000.

RELATED TERMS
  1. Overhead Rate

    Overhead rate is a cost added on to the direct costs of production ...
  2. Applied Overhead

    Applied overhead is a fixed charge assigned to a specific production ...
  3. Unfavorable Variance

    Unfavorable variance is an accounting term that describes instances ...
  4. Yield Variance

    Yield variance describes the difference between actual output ...
  5. Variable Cost Ratio

    The variable cost ratio compares costs, which fluctuate depending ...
  6. Variability

    Variability is the extent to which data points in a statistical ...
Related Articles
  1. Personal Finance

    How budgeting works for companies

    Budgeting is an integral part of running a business efficiently and effectively. Learn more about the two types of budgets that companies commonly use: static and flexible.
  2. Investing

    What's a Sensitivity Analysis?

    Sensitivity analysis is used in financial modeling to determine how one variable (the target variable) may be affected by changes in another variable (the input variable).
  3. Investing

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  4. Personal Finance

    The Complete Guide to Planning a Yearly Budget

    A personal budget is a useful tool for tracking your income and expenses.
  5. Investing

    Computing Historical Volatility in Excel

    We examine how annualized historical volatility is computed from daily log returns, variance and standard deviation.
  6. Investing

    Two Approaches to Building a Low-Risk Portfolio

    Building a portfolio consisting of low-risk assets is achieved primarily by using one of two principal low-volatility strategies.
  7. Investing

    Where Netflix Could Go From Here

    The fact that prices are above resistance tells us that we want to be in the direction of the buyers.
  8. Financial Advisor

    Life Insurance: Variable Vs. Variable Universal

    Do you know why you might need one policy versus the other? Read on to find out the difference between Variable and Variable Universal life insurance.
RELATED FAQS
  1. What are some examples of overhead treatment in cost accounting?

    Look at a brief example of how cost accounting treats overhead expenses, how those expenses are different from direct labor, ... Read Answer >>
  2. How can I measure portfolio variance?

    Find out more about portfolio variance, the formula to calculate portfolio variance and how to calculate the variance of ... Read Answer >>
  3. How do you calculate variance in Excel?

    To calculate statistical variance in Microsoft Excel, use the built-in Excel function VAR. Read Answer >>
  4. How do fixed costs and variable costs affect gross profit?

    Learn about the differences between fixed and variable costs and find out how they affect the calculation of gross profit ... Read Answer >>
  5. What is the difference between standard deviation and average deviation?

    Understand the basics of standard deviation and average deviation, including how each is calculated and why standard deviation ... Read Answer >>
Trading Center