Causes of Manufacturing Overhead Variances

Causes of Manufacturing Overhead Variances - poor...

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Causes of Manufacturing Overhead Variances One reason for an overhead variance relates to over- or under-spending on overhead items.  For  example, overhead may include indirect labor for which a company paid wages higher than the  standard labor price allowed. Or the price of electricity to run the company's machines increased, and  the company did not anticipate this additional cost.  Companies should investigate any spending  variances, to determine whether they will continue in the future.  Generally, the responsibility for  these variances rests with the production department.  The overhead variance can also result from the inefficient use of overhead. For example, because of 
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Unformatted text preview: poor maintenance, a number of the manufacturing machines are experiencing breakdowns on a consistent basis, leading to reduced production . Or the flow of materials through the production process is impeded because of a lack of skilled labor to perform the necessary production tasks, due to a lack of planning. In both of these cases, the production department is responsible for the cause of these variances. On the other hand, overhead can also be underutilized because of a lack of sales orders. When the cause is a lack of sales orders, the responsibility rests outside the production department....
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