You recently received the following note from the production supervisor of the company where you serve as controller.
"I don't understand these crazy variable-overhead efficiency variances. My employees are very careful in their use of electricity and manufacturing supplies, and we use very little indirect labor. What are we supposed to do?"
WRITE A BRIEF MEMO RESPONDING TO THE PRODUCTION SUPERVISOR'S CONCERN.
//Before writing about any Memorandum related to 'Variable Overhead Efficiency Variance', it is essential to gain knowledge about the main concept of 'variable overhead' and 'cost variance'. One should know about the exact meaning of variable overhead and cost variance, which further will aid to analyze the efficiency in an effective way//
Date: October 3, 2007
To: Production Supervisor
Subject: Variable overhead efficiency variance.
Variable overhead efficiency variance arises due to the difference between standard hours required for actual output and the actual hours worked and control is necessary in case the actual results do not fully conform to the plans.
Cost Variance is the difference between a standard cost and the comparable actual cost incurred during a period. Variable overhead efficiency variance is related to the standard hours and actual hours for production. There are various reasons for this variance and it should be controlled through the appropriate planning and control by supervisor as discussed in the memo.
//Above is the discussion of variable overhead and cost variance. Moving to the next direction, explanation about the Control through variance analysis and types of cost is are to be discussed.//
Control through variance analysis
Variance analysis is an effective tool in controlling the material, labor and overheads. It is the analysis of the cost variances into its component parts and the explanation of variances. Thus, it is part of the process of control and involves the calculation of variance ...
This solution-guide provides background information about this management accounting concept and what needs to be included in the memo in 936 words with five references.