What is Controllable Variance? Definition, Formula, Example


During the course of the business, variance can broadly be categorized into two categories: volume variance or rate variance. As far as volume variance is concerned, it can be seen that the variance occurs because of the change in sales volume or the differing usage rates of different goods and services.

On the other hand, rate variance refers to the actual price paid for the goods or services compared to the budgeted price set for the particular product. Rate Variance is referred to as controllable variance.

Controllable Variance, as suggested by the name, is relatively in the production managers’ hands. Amidst volume and rate variance, rate variance is an element that can be relatively predicted well in advance and ‘controlled’ by the company. Therefore, it is referred to as controllable variance.

Controllable Variance also includes both variable and fixed overhead variance, which the company manages over time. It is referred to as the spread between actual and budgeted expenses based on standard costing.

It can either be favorable or unfavorable. Controllable Variance is said to be favorable where the actual costs incurred for a certain product are said to be lesser than the budgeted cost. Similarly, a controllable variance is said to be unfavorable when budgeted costs are lesser than actual costs.


As mentioned earlier, it can be seen that the concept of controllable variance is mostly applied to factory overheads. However, it can be used to calculate other variances too. Therefore, controllable variance is calculated using the following formula:

Controllable variance = Actual Expenditure – (Budgeted Expense incurred per unit * standard number of units)

The formula above shows that the main parameter that is accounted for is the change in ‘rate’ and not volume. In other words, it can be seen that this is considered to be a baseline situation, regardless of the volume change. It tries to encapsulate the difference between the budgeted and actual rates that have been incurred on a certain overhead.  

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Example of Controllable Variance:

Controllable Variance is the difference between budgeted and actual, depending on the actual rates that the company incurred. The following example illustrates the concept of controllable variance:

Blacktips Co. had budgeted their material expenditure for the year ended Dec 31st, 2020, to be $250 per unit, with 2000 as standard units. However, they actually incurred a material expense of $400,000.

In the case mentioned above, Blacktips Co. has a variance of $100,000, based on the following formula:

Controllable variance = Actual Expenditure [400,000] – (Budgeted Expense incurred per unit * standard number of units) [250*2000]

This means that Blacktips Co. was probably able to negotiate a better deal for this from the suppliers. Hence, this is favorable for the company because it is referred to as a favorable controllable variance.

What is Overhead Controllable variance?

Overhead Controllable Variance occurs when there is a difference between budgeted overhead expenses and actually incurred overhead expenses. This is also carried out based on the standard output that is produced. The only factor that is variable when calculating this variance is the difference between the actual overheads incurred and the expected overheads.  

The only difference between controllable variance and overhead controllable variance is that overhead controllable variance is specifically about overheads. In contrast, controllable variance is generic and included other different variances involved in the process too.  

Example of Overhead Controllable Variance

The following illustration is presented to further explain the concept of controllable variance:

Blacktips Co. is a manufacturing concern and had $100,000 in overhead expenses over the year ended December 31st, 2020. In the budget created at the beginning of the year, the budgeted overhead per unit was $25, and the standard number of units was 5000.

In order to calculate the Controllable Variance for Blacktips Co., the following formula is going to be used:

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Overhead controllable variance = Actual Overhead Expenditure [100000]– (Budgeted Overhead incurred per unit * standard number of units)[5000*25]

Therefore, overhead controllable variance turns out to be = -25000.

Since, in the example above, the budgeted overhead was greater than the actual overhead, the variance is said to be favorable. The favorable variance might be because lesser overheads occurred due to better negotiation or some other factor.