What is the first step in calculating variable overhead expenditure variance?

To calculate variable overhead expenditure variance, it is necessary to begin by determining the actual input used in the production process, which often includes assessing labor hours per unit. This step is critical because the variable overhead expenditure variance measures the difference between the actual variable overhead costs incurred and the expected costs based on standard inputs. By calculating labor hours per unit, you establish a baseline for how much variable overhead should be expected based on the labor utilized in producing goods.

Once you have this baseline set through the labor hours, you can proceed to the next steps which may involve calculating actual variable costs incurred and comparing them to the budgeted variable overhead rates. This initial step sets the stage for analyzing any discrepancies in the overhead costs to understand better how the actual expenses align with what was projected.

Thus, starting with the calculation of labor hours per unit is valuable for accurately assessing how variable overhead costs should behave relative to production levels, leading to a more informed analysis of the variance itself.