Wize University Managerial Accounting Textbook > Standard Costing & Variance Analysis
Fixed Overhead Variances
Popular Courses
COMM 305
Concordia University
Managerial Accounting
University Study Guides
Managerial Accounting
University Study Guides
ACC 406
Toronto Metropolitan University
ACCT 2230
University of Guelph
ADM 2341
University of Ottawa
RSM222H1
University of Toronto
COMMERCE 2AB3
McMaster University
ACTG 2020
York University
COMM 1102
Dalhousie University
ACC 312
The University of Texas at Austin
ACC 242
Arizona State University - Tempe
ACC 202
Michigan State University
ACIS 2116
Virginia Tech
ACG 2071
University of Central Florida
BUS1 21
San José State University
BUS-A 306
Indiana University - Bloomington
ACCT 2102
Temple University
ACCTG-202
San Diego State University
MGMT 20100
Purdue University
0:00 / 0:00
Fixed Overhead Variances
A direct labour variance is the difference between the standard cost of direct labour (expected) and the actual cost. The variance is made up of two other variances:
- Spending Variance: Difference between what was actually spent on fixed overhead and the total amount that was budgeted.
- The standard price is the predetermined overhead rate
- Volume Variance: Difference between the amount of fixed overhead that was applied to production and the total amount that was budgeted.
- Total Variance: The sum of the spending and volume variance.
What causes Fixed Overhead spending variance
- Unexpected increase or decrease in a fixed overhead expense during the period. For example an unexpected increase in the insurance premium for the factory.
- Waste and inefficiencies in the management of fixed overhead costs.
What causes Fixed Overhead volume variance
- Producing more or less units than originally expected when preparing the budgets.
- Underestimating or overestimating time required to produce units.
0:00 / 0:00
Example: Fixed Overhead Variances
Wize Corporation manufactures a single product and has the following standard costs per unit of finished goods:
The company's master budget indicates that the normal capacity for any given month is 5,000 units, and in the month of August 2020, 4,800 units were actually produced. The budgeted variable and fixed overhead cost are $87,500 and $112,500 respectively. In producing the 4,800 units, the following costs were incurred:
Compute the Fixed Overhead spending, volume and total variances.
Practice: Fixed Overhead Variances
Buono Corporation manufactures fire extinguishers for residual and commercial use. The standard material cost of producing one unit is $30 (3 lbs of material @ $10/lb). The standard labor rate of workers at the company is $15 per hour, and it is expected that each unit will require 1 hour of labor to be produced.
The budgeted overhead cost is $500,000, of which 30% is variable and the rest is fixed. The company's budget is based on producing 10,000 units this year.
At the end of the year, the company had produced 9,300 units and the following costs were incurred:
- Direct materials (31,000 lbs) $308,450
- Direct labor (9,100 hours) $141,050
- Variable overhead: $180,000
- Fixed overhead: $334,550
Answer the following questions, do not use any symbols ($, %, !);
Use the first blank for the value and in the second blank enter F for favorable and U for unfavorable.
Fixed overhead spending variance
Fixed overhead volume variance
Total fixed overhead variance