What does overhead variance measure?

Overhead variance specifically measures the difference between actual overhead costs incurred and the overhead costs that were applied to production based on a predetermined rate. This variance reflects how well an organization manages its overhead expenses relative to what it anticipated or budgeted.

Understanding overhead variance is crucial for businesses as it helps identify areas where efficiency can be improved or where costs may have escalated unexpectedly. It also aids in financial reporting and decision-making, allowing companies to adjust their budgeting and forecasting processes. Insight into overhead variance can guide management in understanding whether they are spending more or less on overhead than anticipated, highlighting potential operational issues or financial strengths.

The other options do not pertain to overhead variance. For example, the cost of raw materials used is related to direct materials variance, inventory levels pertain to stock management, and the number of employees working relates to labor variance, none of which directly measure overhead variance.