The chapter shows that variance analysis of overhead costs can be presented in 4-, 3-, 2-, and ...

Under the 4-variance analysis, there is a rate variance shown for the variable manufacturing overhead, a rate variance for the fixed overhead component, an efficiency variance for the variable overhead, and a production-volume variance for the fixed overhead. When the firm uses a 3-variance approach, the fixed and variable rate variances are combined into a single variance, while the variable overhead efficiency is still shown separately and the fixed overhead production-volume variance is singled out. In the 2-variance method, the fixed and variable rate variances are combined into one amount along with the variable efficiency, and then the fixed production-volume is shown as a separate variance. The 1-variance method shows the difference between the actual costs incurred and the flexible-budget amount for the output level achieved.