Variable overhead standards

There may be standards for variable overhead, as well as for direct materials and direct labor. The standards are typically expressed in terms of a “rate” and “hours,” much like direct labor.

  • The “rate” is the variable portion of the predetermined overhead rate.

  • The “hours” represent whatever base is used to apply overhead cost to products. Ordinarily, this would be direct labor hours or machine hours.

EXAMPLE:

Speeds, Inc. applies overhead cost to products on the basis of direct labor hours. The variable portion of the predetermined overhead rate is $4 per direct labor hour. Using this rate, the standard cost of variable overhead for one unit of product is:

2.0 hrs. per jogging suit ´ $4 per hr. = $8 per jogging suit.