14 THE VARIABLE OVERHEAD EFFICIENCY VARI-TO SUPPORT THE COMPANY’S S...
10-14 The variable overhead efficiency vari-
to support the company’s strategy, which is a
theory about what actions will further the com-
ance and the direct labor efficiency variance will
always be favorable or unfavorable together if
pany’s goals. Assuming that the company has
financial goals, measures of financial perform-
overhead is applied on the basis of direct labor-
ance must be included in the balanced scorecard
hours. Both variances are computed by compar-
as a check on the reality of the theory. If the
ing the number of direct labor-hours actually
internal business processes improve, but the
worked to the standard hours allowed. That is,
financial outcomes do not improve, the theory
in each case the formula is:
may be flawed and the strategy should be
Efficiency Variance = SR(AH – SH)
changed.
Only the “SR” part of the formula differs be-