Page 236 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

The method of computation is shown as: Notes
Fixed Overhead Variance = (Standard fixed overhead rate × Actual output) – (Actual fixed
overheads)

OR FOV = Actual output × (Fixed overhead rate – Actual fixed overheads)
The fixed overhead variance may be classified into the following types for the purpose of
planning and control:

(i) Fixed Overhead Expenditure Variance, and
(ii) Fixed Overhead Volume Variance.
(a) Fixed Overhead Efficiency Variance,
(b) Fixed Overhead Capacity Variance, and

(c) Fixed Overhead Calendar Variance.
(i) Fixed Overhead Expenditure Variance: This variance is also called budget variance,
obtained by comparing the total fixed overhead cost actually incurred against the
budgeted fixed overhead cost.
Fixed Overhead Expenditure Variance = Budgeted fixed overheads – Actual
fixed overheads
(ii) Fixed Overhead Volume Variance: The volume variance is computed by taking the
difference between overhead absorbed on actual output and those on budgeted
output. It is calculated as under:
Fixed Overhead Volume Variance = (Actual output × Standard rate) – (Budgeted
fixed overheads)
OR FOVV = Standard rate × (Actual output – Standard output)
OR FOVV = Standard rate per hour (Standard hours produced – Budgeted hours)
(a) Fixed Overhead Efficiency Variance: The efficiency variance arises due to the
difference between budgeted efficiency to production and the actual efficiency
is achieved. It is calculated as under:

Fixed Overhead Efficiency Variance = Standard rate per hour × (Actual hours
worked – Standard hours for actual output)
OR FOEV = Standard rate × (Actual output in units – Standard output in
units)
(b) Fixed Overhead Capacity Variance: The capacity variance represents the part
of volume variance which arises due to working at higher or lower capacity
than standard capacity. It is calculated as under:
Fixed Overhead Capacity Variance = Standard rate × (Budgeted quantity
– Standard quantity)
OR FOCV = Standard rate × (Revised budgeted quantity – Standard quantity)
OR FOCV = Standard rate × (Revised budgeted hours – Budgeted hours)

(c) Fixed Overhead Calendar Variance: The calendar variance arise due to the
volume variance which is due to the difference between the number of working
days anticipated in the budget period and the actual working days in the
period to which the budget is applied. It is calculated as:

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