A controllable variance refers to the "rate" portion of a variance. A variance is comprised of two primary elements, which are the volume variance and the rate variance. The volume element is that portion of the variance attributable to changes in sales volume or unit usage from a standard or budgeted amount, while the rate element is the difference between the actual price paid and a standard or budgeted price.
The controllable variance concept is usually applied to factory overhead, where the calculation of the controllable variance is:
Actual overhead expense - (budgeted overhead per unit x standard number of units)
Thus, the controllable variance within the total factory overhead variance is that portion not related to changes in volume. Or, stated another way, the controllable variance is actual expenses minus the budgeted amount of expenses for the standard number of units allowed.
For example, ABC Company incurs $92,000 of actual overhead expenses in February. In the company's budget, the budgeted overhead per unit is $20, and the standard number of units to be produced as per the budget is 4,000 units. The controllable variance is:
$92,000 Actual overhead expense - ($20 Overhead/unit x 4,000 Standard units) = $12,000
Department managers are considered to be responsible for managing controllable variances. However, from a practical perspective, a controllable variance may be completely uncontrollable if it is calculated from a baseline standard cost that is impossible to attain. Consequently, a manager who is being held accountable for this type of variance should be careful to determine the basis for a standard cost before agreeing to be responsible for it. This a particular problem when the baseline standard cost is a "theoretical standard," where the cost can only be attained if everything functions perfectly.