Fixed factory overhead variance

Definition

Fixed factory overhead variance is the difference between the budgeted fixed manufacturing overhead and the actual fixed manufacturing overhead incurred. It measures how well a company controls its fixed overhead costs in comparison to its budgeted expectations.

5 Must Know Facts For Your Next Test

1. It is calculated as the difference between budgeted fixed overhead and actual fixed overhead.
2. A favorable variance occurs when actual fixed overhead is less than budgeted.
3. An unfavorable variance occurs when actual fixed overhead exceeds budgeted.
4. It helps in assessing cost control and efficiency in production processes.
5. Fixed factory overhead variance can be further broken down into spending variance and volume variance.

Review Questions

• What constitutes a favorable fixed factory overhead variance?
• How do you calculate the fixed factory overhead variance?
• Why is it important to analyze fixed factory overhead variances?

Related terms

Spending Variance: The difference between the actual cost incurred for fixed overhead and the budgeted amount based on standard costs.

Volume Variance: The difference arising from producing more or fewer units than expected, impacting the allocation of fixed costs per unit.

Standard Costing: A system that assigns expected costs to products, which are then compared to actual costs to identify variances.