A variable overhead budget variance is further analyzed into a variable overhead (price/rate/spending) variance and a variable overhead (usage/efficiency) variance.

A variable overhead budget variance is a difference between the actual variable overhead and the budgeted variable overhead. This variance can be further broken down into two components for a more detailed analysis:

1. Variable Overhead Spending Variance: This variance measures the difference between the actual cost per unit of the variable overhead and the standard cost that was expected per unit. It is calculated as the difference between the actual variable overhead costs and the budgeted variable overhead costs based on the actual hours worked.

2. Variable Overhead Efficiency Variance: This variance measures the efficiency in the use of the variable overhead based on the standard hours that should have been worked for the actual output and the actual hours worked. It is calculated as the difference between the budgeted variable overhead based on the actual hours worked and the budgeted variable overhead based on the standard hours that should have been worked for the actual output.

By breaking down the variable overhead budget variance into these two components, a company can identify whether the variance was due to spending more or less per unit of the variable overhead (spending variance) or using the variable overhead more or less efficiently (efficiency variance).