Efficiency in accounting is a measure of how effectively an organization can produce and distribute its product, typically quantified by comparing standard hours allowed for production and actual hours taken.
Efficiency variances measure the difference between the actual amount of resources used in production and the standard amount that should have been used, focusing particularly on labor and overhead costs.
Overhead Efficiency Variance is an accounting concept used in standard costing systems to measure the variance in overhead costs due to the efficiency or inefficiency of actual production time compared to the standard time allocated.
The Overhead Efficiency Variance measures the difference between the standard overhead cost allocated based on standard hours and the actual overhead cost incurred based on actual hours worked.
A standard hour represents a measure of production that quantifies the amount of work or number of units produced within an hour under normal conditions. It is instrumental in calculating efficiency ratios and efficiency variances.
Understand the key concept of variable overhead efficiency variance within a standard costing system, and how it affects business financial performance.
