overhead-cost variancethe difference between the standard overhead cost of a product and its actual overhead cost. Use of COST RATES for charging OVERHEADS to products will recover the overheads actually incurred only if actual overhead costs correspond with BUDGET and if actual output is the same as budgeted output. If actual expenditure is larger than the budgeted amount, then the standard overhead cost per unit of product will be smaller than actual unit overheads incurred and overheads will be under-recovered in the price set (expenditure variance). Again, if actual output turns out to be smaller than planned output, then fixed overheads will remain as under-recovered overheads (volume variance). By contrast, over-recovery of overheads occurs when actual overhead costs are less than budget and/or more is produced than planned. See ABSORPTION, STANDARD COST.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson