The fixed production overhead variances

The fixed production overhead variances are calculated as follows:
Fixed production overhead variance
This is the difference between fixed production overhead incurred and fixed production overhead absorbed (= the under- or over-absorbed fixed production overhead)

	$
Overhead incurred	25,000
Overhead absorbed (1,000 units x $24)	24,000
Overhead variance	1,000 (A)

Fixed production overhead expenditure variance
This is the difference between the budgeted fixed production overhead expenditure and actual fixed production overhead expenditure

	$
Budgeted overhead (1,200 x $24)	28,800
Actual overhead	25,000
Expenditure variance	3,800 (F)

Fixed production overhead volume variance
This is the difference between actual and budgeted production volume multiplied by the standard absorption rate per unit.

	$
Actual production at std rate (1,000 x $24)	24,000
Budgeted production at std rate (1,200 x $24)	28,800
	4,800 (A)

Fixed production overhead volume efficiency variance
This is the difference between the number of hours that actual production should have taken, and the number of hours actually worked (usually the labour efficiency variance), multiplied by the standard absorption rate per hour.

Labour efficiency variance in hours	200 hrs (A)
Valued @ standard rate per hour	x $6
Volume efficiency variance	$1,200 (A)

Fixed production overhead volume capacity variance
This is the difference between budgeted hours of work and the actual hours worked, multiplied by the standard absorption rate per hour

Budgeted hours (1,200 x 4)	4,800 hrs
Actual hours	4,200 hrs
Variance in hrs	600 hrs (A)
x standard rate per hour	x $6
	$3,600 (A)

KEY. The fixed overhead volume capacity variance is unlike the other variances in that an excess of actual hours over budgeted hours results in a favourable variance and not an adverse variance as it does when considering labour efficiency, variable overhead efficiency and fixed overhead volume efficiency. Working more hours than budgeted produces an over absorption of fixed overheads, which is a favourable variance.

Sales variances