How is overhead variance defined?

Overhead variance is defined as the difference between actual overhead costs incurred and budgeted overhead costs for a given period. This variance is crucial for managerial accounting because it allows managers to assess how well the company is controlling its overhead costs compared to what was originally planned.

Understanding overhead variance involves analyzing how the actual costs align with budgeted amounts. If actual costs exceed budgeted costs, a negative variance occurs, indicating potential inefficiencies or unexpected expenses. Conversely, if actual costs are lower than budgeted, it suggests effective cost management.

The other options do not accurately describe overhead variance. For instance, the difference between estimated and actual sales revenue pertains to sales performance rather than overhead management. The cost of goods sold minus overhead costs does not represent a variance calculation, as it mixes different categories of costs. Lastly, total indirect manufacturing costs in a period refers to the total overhead costs themselves without any comparison to budgeted amounts, failing to capture the concept of variance.