@mike, did you take cost accounting? do you have access to a text book? this is usually a whole chapter or two.
First, fixed and variable OH are two separate accounts, each with its own variances.
Spending variance for VOH is similar to spending variance for DL and DM, based on actual amount per hour and standard amount per hour times actual hours.
Efficiency variance for VOH is similar to efficiency variance for DL and DM, based on actual hours vs standard hours times standard price/rate per hour.
For FOH it is trickier and intuitively difficult because although the amount is fixed, it still has to be allocated to products, as if it were variable. This give rise to variances.
The spending variance is the difference between budgeted FOH and actual amount spent. It is not dependent on hours.
But for the volume variance, the FOH must be divided by the allocation base (usually estimated/projected hours) and applied to products using this calculated FOH rate.
Then you calculate what is called the FOH volume variance. It is the difference in hours used and hours estimated times standard FOH rate.
If more products were built then you have a favorable variance meaning you got more out of your factory than you expected, without incurring additional charges (the FOH is fixed after all).
If fewer products were built, then the variance is unfavorable.
Obviously sales volume is not decided by production managers, so this variance is outside of their control, but it is still worthwhile information.
After you understand these 4 variances (called 4-way), you can combine them into 3-way (V spending+F spending, V efficiency, F volume) and 2 -way (V spending + F spending + V efficiency, F volume).
BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)
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