The difference between the number of hours of variable production overhead
and the number of hours budgeted. The variable production overhead efficiency variance
is similar to the direct labor efficiency variance
, except that the rate
is the variable production overhead rate and not the wage rate
. For example, a company
that produces microwaves has a variable production overhead rate of $5/hour. It budgeted 1,000 hours of labor
500 microwaves, which would result
in labor costs of $5,000 (1,000 hours x $5/hour). If the actual number of hours used to manufacture
the microwaves was 900, the company would have spent $4,500 (900 hours x $5/hour).
The hour variance was 100. This represents cost savings of $500.