A manufacturing company that uses standard costs and flexible budgets can break the total variable overhead cost variance into:
A) Volume and efficiency components.
B) Spending and efficiency variances.
C) Spending and production volume variances.
D) Spending variances only.
E) A selling price variance and a sales volume variance.

Question

Quizplus · Accepted Answer

The total variable overhead cost variance can be broken down into two components: spending variance and efficiency variance. The spending variance measures the difference between the actual variable overhead cost incurred and the budgeted amount at the actual level of activity. The efficiency variance measures the difference between the budgeted variable overhead cost at the actual level of activity and the actual cost adjusted for differences in efficiency. Volume variance is not a component of overhead variance in a flexible budgeting system. A selling price variance and sales volume variance are unrelated to variable overhead costs.

A Manufacturing Company That Uses Standard Costs and Flexible Budgets