How is the variable overhead rate variance computed?

The variable overhead rate variance is a measure used to analyze the difference between the actual variable overhead costs incurred and the expected variable overhead costs based on a standard rate. To compute this variance, the formula involves assessing the actual hours worked and comparing the actual overhead rate to the standard overhead rate.

The correct approach for calculating the variable overhead rate variance is to take the actual hours worked and multiply them by the difference between the actual overhead rate and the standard overhead rate. This emphasizes the impact of the actual costs incurred and the efficiency with which resources were utilized compared to the standards set by the company.

In essence, this variance helps managers understand whether the company is spending more or less on variable overhead than what was anticipated based on established standards, and pinpointing inefficiencies or cost control issues related to variable overhead expenditures.