Which variance is caused by incurring actual overhead costs at a rate different from the standard overhead rate?

Which variance is caused by incurring actual overhead costs at a rate different from the standard overhead rate?

• A. Volume Variance
• B. Spending Variance
• C. Efficiency Variance
• D. Sales Variance

Answer: (B)

The main idea here is how actual overhead costs compare to what should have been spent based on the standard rate. When overhead costs are incurred at a rate different from the standard overhead rate, the difference is the spending (or budget) variance. It captures whether you paid more or less per unit of activity than planned. For example, if the standard overhead rate is $5 per hour and actual hours total 1,000, with actual overhead costs of $6,000, the absorbed overhead (using the standard rate) would be $5,000. The spending variance is $6,000 − $5,000 = $1,000 unfavorable, because you spent more per hour than the standard rate. The other variances relate to different ideas: volume variance reflects differences between budgeted and actual production volume and affects fixed overhead absorption, not the per-unit rate of cost. Efficiency variance concerns how effectively the allocation base (like hours) was used to produce output—not the rate charged for overhead. Sales variance involves revenue, not overhead costs.

The main idea here is how actual overhead costs compare to what should have been spent based on the standard rate. When overhead costs are incurred at a rate different from the standard overhead rate, the difference is the spending (or budget) variance. It captures whether you paid more or less per unit of activity than planned.

For example, if the standard overhead rate is $5 per hour and actual hours total 1,000, with actual overhead costs of $6,000, the absorbed overhead (using the standard rate) would be $5,000. The spending variance is $6,000 − $5,000 = $1,000 unfavorable, because you spent more per hour than the standard rate.

The other variances relate to different ideas: volume variance reflects differences between budgeted and actual production volume and affects fixed overhead absorption, not the per-unit rate of cost. Efficiency variance concerns how effectively the allocation base (like hours) was used to produce output—not the rate charged for overhead. Sales variance involves revenue, not overhead costs.