Fixed overhead expenditure variance
This is the difference between budgeted and actual fixed costs.
$
Budgeted expenditure ($50 × 900) 45,000
Actual expenditure 47,000
Expenditure variance (actual spending higher than budgeted) 2,000 (A)
Fixed overhead volume variance
This is calculated when the standard cost is a full production cost that includes absorbed fixed overhead. It is not calculated in a system of standard marginal costing; it is the difference between the budgeted and actual production volumes. It is converted into a money value at the standard production overhead cost per unit.
Units
Budgeted production at standard rate (900 × $50) 900
Actual production at standard rate (800 × $50) 800
Volume variance in units (output less than budget) 100 (A)
Standard production overhead cost per unit $50
Volume variance in $ $5,000 (A)
The volume variance may be analysed into an efficiency and a capacity variance. Fixed overhead efficiency variance + Capacity variance = Volume variance.
Fixed overhead volume efficiency variance
This is the same as the labour efficiency variance in hours. It is converted into a monetary value at the standard production overhead rate per hour.
$
800 units should have taken (× five hrs) 4,000 hrs
but did take 4,200 hrs
Volume efficiency variance in hours 200 (A)
× standard absorption rate per hour × $10
Volume efficiency variance $2,000 (A)
Fixed overhead volume capacity variance
This is the difference between the budgeted hours of work (budgeted capacity) and the actual hours worked in production. It is converted into a monetary value at the standard production overhead rate per hour.
Budgeted hours 4,500 hrs
Actual hours 4,200 hrs
Volume capacity variance in hours 300 (A)
× standard absorption rate per hour ($50 ÷ 5) × $10
$3,000 (A)
