OH Variance Analysis - Two Variances & Three Variance Method

There are couple of approaches for Overhead Variances. In one approach, variances for FIXED and VARIABLE overheads are calculated separately. (click here for explanation and formula of this approach)

Whereas in the second approach, which is the topic of this post, separate variances are not calculated.

Note: (First approach is more widely used than the later, and you will have to refer your own syllabus in order to determine which approach falls within your scope. In some professional courses, students may be asked to learn both methods.)

In Two Variance Method, the following variances are calculated.

  • Controllable Variance
  • Volume Variance

In Three Variance Method, the following variances are calculated.

  • Spending Variance
  • Idle Capacity Variance
  • Efficiency Variance

In Four Variance Method, the following variances are calculated.

  • Spending Variance
  • Idle Capacity Variance
  • Variable Overhead Efficiency Variance
  • Fixed Overhead Efficiency Variance

The formula for Two Variance Method & Three Variance Method are given are available below in this post whereas the formula for Four Variance Method are shall be provided in the next post.

You can click on the image below to enlarge the view.

two three variance method OH Variance Analysis   Two Variance & Three Variance Method


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