Overhead variance is difference between actual overhead and estimated overhead. Suppose, estimated overhead is Rs. 5000 and actual overhead is Rs. 2000. Overhead variance will be Rs. 3000 which is under-absorption of overheads. If actual overheads are more than estimated overheads, it will be over-absorption of overheads.
Importance of Calculating Overhead Variance
1. By calculating overhead variance, we can stop defective planning and failure of planning.
2. By calculating overhead variance, we can find our factory inefficiency. After this, we can take step to stop this.
3. By calculating overhead variance, we can know the increases in cost or decreases in cost due to inflation or deflation.
Importance of Calculating Overhead Variance
1. By calculating overhead variance, we can stop defective planning and failure of planning.
2. By calculating overhead variance, we can find our factory inefficiency. After this, we can take step to stop this.
3. By calculating overhead variance, we can know the increases in cost or decreases in cost due to inflation or deflation.
