overheadvariances

Overhead variances, also known as organizational or administrative variances, are financial variances that occur as a result of differences between the actual and budgeted overhead costs of an organization or a production department.

Overhead variances arise from a variety of sources, including differences in the actual costs of energy, rent, salaries, and other expenses. These costs are often difficult to accurately predict, as they can be influenced by a range of factors such as changes in business conditions, government regulations, and market forces.

There are several types of overhead variances, including:

* Favorable variances: These occur when actual overhead costs are less than budgeted costs.

* Unfavorable variances: These occur when actual overhead costs are greater than budgeted costs.

* Volume variances: These occur when changes in production volume affect the overall overhead costs.

* Efficiency variances: These occur when changes in production efficiency affect the overall overhead costs.

Overhead variances can have a significant impact on the financial performance of an organization. Unfavorable variances, in particular, can increase costs and reduce profitability. As a result, managers often conduct variance analysis to identify the causes of overhead variances and implement corrective actions to reduce costs and improve efficiency.

Accurate calculation and analysis of overhead variances require access to detailed cost data and knowledge of the organizational structure and processes. By understanding the underlying causes of overhead variances, managers can make informed decisions about cost reduction and improvement initiatives.