Controllable variance includes both variable and fixed overhead variance which the company is able to manage. It is the variance that can be changed or adjust by the management. Controllable variance is the difference between the actual and budgeted expense base on standard costing. It can be a favorable and unfavorable variance.
If the actual expense is higher than the budget, it is the unfavorable variance. On the other hand, if the actual expense is lower than the budget, it is a favorable variance.
Overhead Controllable Variance
Overhead variance is the difference between the budgeted overhead, which is the result of applying a predetermined overhead rate to the production output, and the actual overhead occurs.
It is the responsibility of the factory management to overlook the cost to ensure that they are under control. It should be over the standard cost which we have estimate during the planning stage. Any huge variance will impact to budget and business strategy. It may unexpectedly turn the profit and loss statement upside down.
Overhead variance consists of both variable and fixed variance.
Controllable Variance Example
For example, Company A produces 10,000 units of product during the month. Base on the predetermined overhead rate, the company should spend $ 15 per unit. So the budget overhead cost should be $ 150,000. However, the actual total overhead is 170,000 for the production of 10,000 units.
Controllable variance = $ 170,000 – (10,000 units * $ 15) = $ 20,000
This variance includes both variable and fixed costs which we need to separate and analyze.