Variable production overhead efficiency variance,

Definition of Variable production overhead efficiency variance:

1. The difference between the number of hours of variable production overhead per unit and the number of hours budgeted. The variable production overhead efficiency variance is similar to the direct labor efficiency variance, except that the rate is the variable production overhead rate and not the wage rate. For example, a company that produces microwaves has a variable production overhead rate of $5/hour. It budgeted 1,000 hours of labor to produce 500 microwaves, which would result in labor costs of $5,000 (1,000 hours x $5/hour). If the actual number of hours used to manufacture the microwaves was 900, the company would have spent $4,500 (900 hours x $5/hour). The hour variance was 100. This represents cost savings of $500.