# Variable Overhead Variances — Unit Basis

Variable overhead (V-OH) variances measure the difference between standard and actual variable overhead costs. When calculated on the basis of units, we work with quantity of overhead consumed per unit produced.

## Key Abbreviations

Symbol	Meaning
SQAO	Standard Quantity of OH for Actual Output
AQ	Actual Quantity of OH for actual units produced
SP	Standard Price per unit of OH
AP	Actual Price paid per unit of OH
AO	Actual Output

## The Variance Tree

```

TOTAL VARIABLE OH COST VARIANCE

(SQAO × SP) − (AQ × AP)

│

┌───────────┴───────────┐

│ │

V-OH EXPENDITURE V-OH EFFICIENCY

VARIANCE VARIANCE

(SP − AP) × AQ (SQAO − AQ) × SP

```

## Formulas

1. Total Variable OH Cost Variance

= (SQAO × SP) − (AQ × AP)
= (SQ/unit × AO × SP) − (AQ/unit × AO × AP)

2. V-OH Expenditure Variance (price-based)

= (SP − AP) × AQ
= (SP − AP) × AQ/unit × AO

3. V-OH Efficiency Variance (quantity-based)

= (SQAO − AQ) × SP
= (SQ/unit × AO − AQ) × SP

## Verification

Expenditure Variance + Efficiency Variance = Total Variable OH Cost Variance

Worked example

### Example 1

Example: Standard: 2 units of OH per unit produced at ₹5/unit. Actual output: 1,000 units. Actual OH consumed: 2,100 units at ₹6/unit.

SQAO = 2 × 1,000 = 2,000 units; AQ = 2,100 units
SP = ₹5; AP = ₹6
Total Cost Variance = (2,000 × 5) − (2,100 × 6) = 10,000 − 12,600 = ₹2,600 (A)
Expenditure Variance = (5 − 6) × 2,100 = ₹2,100 (A)
Efficiency Variance = (2,000 − 2,100) × 5 = ₹500 (A)
Check: 2,100 + 500 = 2,600 ✓

⚠️ Common exam mistakes

Confusing SQAO (standard for actual output) with budgeted standard quantity for budgeted output.
Using actual price in expenditure variance instead of taking the (SP − AP) differential.
Forgetting that favourable variance occurs when standard > actual cost.
Mixing the unit-based and hour-based formulas in the same problem.

Reference:

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Variable Overhead Variances (Unit Basis)

Worked example

⚠️ Common exam mistakes