What is the overhead expenditure variance and how is it calculated?

What is the overhead expenditure variance and how is it calculated?

• A. Actual overhead − budgeted overhead; includes volume variances.
• B. Actual overhead − budgeted overhead (excluding variances due to volume).
• C. Budgeted overhead − actual overhead; includes volume variances.
• D. Actual overhead × budgeted overhead; unrelated.

Answer: (B)

Overhead expenditure variance measures whether the actual spending on overheads was in line with what was budgeted, isolating the effect of spending decisions from production levels. It is calculated as actual overhead minus budgeted overhead, meaning you compare what you actually spent to what you planned to spend, without considering how much you produced. This separation matters because volume changes (producing more or less) create a separate variance that affects how much overhead is absorbed into product costs, but the expenditure variance specifically reflects spending efficiency. For example, if you budgeted 100k for overhead and actually spent 110k, the expenditure variance is 10k adverse. If production was higher than planned and more overhead was absorbed, the total overhead variance could look different, but the expenditure variance itself remains the difference between actual and budgeted spending.

Overhead expenditure variance measures whether the actual spending on overheads was in line with what was budgeted, isolating the effect of spending decisions from production levels. It is calculated as actual overhead minus budgeted overhead, meaning you compare what you actually spent to what you planned to spend, without considering how much you produced. This separation matters because volume changes (producing more or less) create a separate variance that affects how much overhead is absorbed into product costs, but the expenditure variance specifically reflects spending efficiency.

For example, if you budgeted 100k for overhead and actually spent 110k, the expenditure variance is 10k adverse. If production was higher than planned and more overhead was absorbed, the total overhead variance could look different, but the expenditure variance itself remains the difference between actual and budgeted spending.