# Variable Overhead Variances — Hour Basis
When variable overhead is recovered on the basis of hours worked (labour or machine hours), the same variance framework applies but with hours and rates per hour replacing quantity and price per unit.
## Key Abbreviations
| Symbol | Meaning |
|---|---|
| SHAO | Standard Hours of VOH for actual units produced |
| AH | Actual Hours of VOH for actual units produced |
| SR | Standard Rate per hour of VOH |
| AR | Actual Rate per hour of VOH |
## Important Distinction: AH paid vs AH worked
- Expenditure Variance uses AH paid (the hours for which payment is made)
- Efficiency Variance uses AH worked (the hours actually utilised in production)
This is the critical difference between expenditure and efficiency components.
## Formulas
1. Total Variable OH Cost Variance
- = (SHAO × SR) − (AH × AR)
- = (SH/unit × AO × SR) − (AH/unit × AO × AR)
2. V-OH Expenditure Variance (use AH paid)
- = (SR − AR) × AH
- = (SR − AR) × AH/unit × AO
3. V-OH Efficiency Variance (use AH worked)
- = (SHAO − AH) × SR
- = (SH/unit × AO − AH) × SR