Fixed Overhead Variances

Fixed overhead represents all items of expenditure that more or less remain constant irrespective of the level of output or the number of hours worked. The fixed overheads are classified as follows:

Classification of Fixed Overhead Variances

The formulae for calculation of fixed overhead variances are given below:

Fixed Overhead Cost Variance

The fixed overhead cost variance represents the under/over absorbed fixed production overhead in the period. This under/over absorbed overhead may be due to differences between actual and budgeted fixed overheads, i.e., expenditure variances, and/or differences between the actual and budgeted levels of activity i.e., volume variances.

Fixed Overhead Expenditure Variance

This variance is also called budget variance, obtained by comparing the total fixed overhead cost actual incurred against the budgeted fixed overhead cost.

Fixed Overhead Expenditure Variance = Budgeted overheads – Actual overheads

Fixed Overhead Volume Variance
The volume variance is computed by taking the difference between overhead absorbed on actual output and those on budged output.

Fixed Overhead Volume Variance
= (Actual output × Standard rate) – Budgeted fixed overheads

or

= Standard rate (Actual output – Budgeted output)

or

= Standard rate per hour[Standard hours produced − Budgeted hours]