The overhead variance is the difference between:

The overhead variance is the difference between:

• A. Actual total overhead and the standard overhead applied
• B. Budgeted overhead and actual overhead
• C. Actual total overhead and budgeted overhead
• D. Standard overhead applied and budgeted overhead

Answer: (A)

Overhead variance measures how much actual overhead differs from what the standard costing system allocated to production. In a standard costing setup, the standard overhead applied to production is computed by multiplying the standard overhead rate by the actual level of activity (like hours or machine time). The variance is the difference: actual overhead incurred minus the standard overhead applied. If actual is higher, overhead is under-absorbed (unfavorable); if actual is lower, overhead is over-absorbed (favorable). This focuses on what was actually spent versus what the cost system allocated based on activity, not just budget targets or planned amounts.

Overhead variance measures how much actual overhead differs from what the standard costing system allocated to production. In a standard costing setup, the standard overhead applied to production is computed by multiplying the standard overhead rate by the actual level of activity (like hours or machine time). The variance is the difference: actual overhead incurred minus the standard overhead applied. If actual is higher, overhead is under-absorbed (unfavorable); if actual is lower, overhead is over-absorbed (favorable). This focuses on what was actually spent versus what the cost system allocated based on activity, not just budget targets or planned amounts.