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Cost Accounting · Standard Costing and Variance Analysis

Fixed Overhead Variances: Formulas and Numericals

Updated 10 October 2026 · Fact-checked

Fixed overhead variances compare the fixed overhead absorbed on actual output with the actual and budgeted fixed overhead. The cost variance splits into expenditure (budget minus actual) and volume (absorbed minus budget). Volume splits further into efficiency, capacity and calendar variances. Find the standard rate first, then work through each variance and mark it F or A.

Understand Fixed Overhead Variances

Fixed overhead does not change with output within a relevant range. So the budget is a fixed sum, and you absorb it into products using a standard rate, set as budgeted fixed overhead ÷ budgeted output (or budgeted hours). The variances show why the amount absorbed differs from the amount actually spent.

There are two big causes. First, you may have spent more or less than the budget. That is the expenditure variance. Second, you may have produced more or less than planned, so you absorbed more or less than the budget. That is the volume variance. Together they make the fixed overhead cost variance.

Volume variance can be split by asking why output differed from the budget. Workers may have been faster or slower than standard (efficiency variance). Plant hours may have been more or less than planned (capacity variance). The number of working days may have differed from the budget (calendar variance).

Sign rule: a variance is Favourable (F) when it increases profit, and Adverse (A) when it reduces profit. Absorbed above budget or actual is F. Actual spending above budget is A.

Fixed overhead has no price or usage split like materials. Expenditure is the only spending variance, and the rest are all volume-related. Note that the calendar variance appears only when the question gives budgeted and actual working days.

Key rules to remember

Standard fixed overhead rate
Per unit = Budgeted fixed overhead ÷ Budgeted output; Per hour = Budgeted fixed overhead ÷ Budgeted hours
Use the per hour rate for efficiency, capacity and calendar variances. Use the per unit rate for a quick volume variance.
Absorbed (standard) fixed overhead
Standard rate × Actual output (or Standard hours for actual output)
This is the amount charged to production at standard.
Fixed overhead cost variance
Absorbed fixed overhead − Actual fixed overhead
Positive is F, negative is A. It equals expenditure variance + volume variance.
Expenditure (budget) variance
Budgeted fixed overhead − Actual fixed overhead
Uses the budget for the full period, not a flexed figure, because fixed overhead does not flex.
Volume variance
Absorbed fixed overhead − Budgeted fixed overhead = Std rate per unit × (Actual output − Budgeted output)
It equals efficiency + capacity + calendar variances.
Efficiency variance
Std rate per hour × (Standard hours for actual output − Actual hours worked)
Positive means actual output took fewer hours than standard.
Capacity variance
Std rate per hour × (Actual hours worked − Revised budgeted hours)
Revised budgeted hours = Budgeted hours × Actual days ÷ Budgeted days. If no calendar data is given, use budgeted hours.
Calendar variance
Std rate per hour × (Revised budgeted hours − Budgeted hours) = Std rate per day × (Actual days − Budgeted days)
More working days than budget is F, fewer is A.
Check relationships
Volume = Efficiency + Capacity + Calendar; Cost = Expenditure + Volume
Use these as a quick arithmetic check in the exam.

How to solve Fixed Overhead Variances questions

Use this order for any fixed overhead variance question. It keeps every figure traceable and earns step marks.

  1. 1Write down the budget data: fixed overhead, output, hours and days. Then write the actual data in the same layout.
  2. 2Compute the standard rate per unit and per hour from the budget.
  3. 3Compute standard hours for actual output (actual output × standard hours per unit) and the absorbed fixed overhead.
  4. 4If days are given, compute revised budgeted hours = budgeted hours × actual days ÷ budgeted days.
  5. 5Calculate the cost variance and the expenditure variance. Then calculate the volume variance.
  6. 6Calculate efficiency, capacity and calendar variances using the hour-based formulas.
  7. 7Mark each result F or A, then check that volume = efficiency + capacity + calendar and cost = expenditure + volume.
  8. 8Add a one-line interpretation, such as which cause hurt profit most.

Quickest way: Absorbed-versus-budget ladder

When to use it: Use it when the question gives hours and asks for all the variances in limited time.

  1. Write four amounts in a row: Actual FO, Budgeted FO, Absorbed FO (std hours for actual output × rate), and if days are given, Revised budgeted FO (revised budgeted hours × rate).
  2. Take each pair of neighbouring amounts. Actual to Budget is expenditure. Budget to Absorbed is volume.
  3. For the volume split, compare in hours at the standard rate: Budgeted hours to Revised budgeted hours is calendar, Revised budgeted hours to Actual hours is capacity, Actual hours to Standard hours for actual output is efficiency.
  4. Mark each as F if the move increases profit, otherwise A.
  5. Check that the three parts add up to the volume variance.

Common mistakes in Fixed Overhead Variances

  • Flexing the fixed overhead budget for actual output when finding expenditure variance.

    Students copy the variable overhead method, where the budget flexes with output.

    Fix: Fixed overhead does not flex. Expenditure = Budgeted FO − Actual FO, using the full period budget.

  • Using standard hours for actual output in the capacity variance.

    Efficiency and capacity both use hours, so the two get mixed up.

    Fix: Capacity compares actual hours with revised budgeted hours. Efficiency compares standard hours for actual output with actual hours.

  • Ignoring the calendar variance, or using budgeted hours as the capacity base when working days differ.

    Students overlook the days data in the question.

    Fix: If budgeted and actual days are given, compute revised budgeted hours first. Then capacity uses it as the base and calendar picks up the days difference.

  • Wrong signs, for example calling an overspend favourable.

    Students reverse the order of subtraction.

    Fix: Always take the profit-increasing figure first: Absorbed − Actual, Budget − Actual, Actual hours − Budget hours for capacity, Standard hours − Actual hours for efficiency.

  • Using the per unit rate for hour-based variances, or the reverse.

    Both rates are computed and the wrong one is picked up in a hurry.

    Fix: Label each rate clearly. Per hour rate for efficiency, capacity and calendar. Per unit rate only for the volume shortcut.

Worked examples

Example 1

Budgeted fixed overhead ₹5,00,000; budgeted output 10,000 units; budgeted hours 50,000 (5 hours per unit). Actual: output 9,600 units, hours worked 49,000, fixed overhead ₹5,10,000. Calculate the fixed overhead cost, expenditure, volume, efficiency and capacity variances.

Show the solution
  1. Standard rate per hour = ₹5,00,000 ÷ 50,000 = ₹10. Rate per unit = ₹50.
  2. Standard hours for actual output = 9,600 × 5 = 48,000 hours.
  3. Absorbed fixed overhead = 48,000 × ₹10 = ₹4,80,000.
  4. Cost variance = ₹4,80,000 − ₹5,10,000 = ₹30,000 A.
  5. Expenditure variance = ₹5,00,000 − ₹5,10,000 = ₹10,000 A.
  6. Volume variance = ₹4,80,000 − ₹5,00,000 = ₹20,000 A. Check: 50 × (9,600 − 10,000) = ₹20,000 A.
  7. Efficiency variance = ₹10 × (48,000 − 49,000) = ₹10,000 A.
  8. Capacity variance = ₹10 × (49,000 − 50,000) = ₹10,000 A. No days data is given, so there is no calendar variance.
  9. Check: efficiency + capacity = ₹20,000 A = volume. Expenditure + volume = ₹30,000 A = cost.

Answer: Cost ₹30,000 A; Expenditure ₹10,000 A; Volume ₹20,000 A; Efficiency ₹10,000 A; Capacity ₹10,000 A.

Example 2

Budget for a month: fixed overhead ₹3,00,000; 25 working days; output 10,000 units; hours 20,000 (2 hours per unit). Actual: 26 working days, output 10,200 units, hours worked 20,500, fixed overhead ₹3,10,000. Calculate all fixed overhead variances.

Show the solution
  1. Standard rate per hour = ₹3,00,000 ÷ 20,000 = ₹15.
  2. Standard hours for actual output = 10,200 × 2 = 20,400. Absorbed fixed overhead = 20,400 × ₹15 = ₹3,06,000.
  3. Revised budgeted hours = 20,000 × 26 ÷ 25 = 20,800.
  4. Cost variance = ₹3,06,000 − ₹3,10,000 = ₹4,000 A.
  5. Expenditure variance = ₹3,00,000 − ₹3,10,000 = ₹10,000 A.
  6. Volume variance = ₹3,06,000 − ₹3,00,000 = ₹6,000 F.
  7. Efficiency variance = ₹15 × (20,400 − 20,500) = ₹1,500 A.
  8. Capacity variance = ₹15 × (20,500 − 20,800) = ₹4,500 A.
  9. Calendar variance = ₹15 × (20,800 − 20,000) = ₹12,000 F.
  10. Check: 12,000 F − 4,500 A − 1,500 A = ₹6,000 F = volume. ₹6,000 F − ₹10,000 A = ₹4,000 A = cost.

Answer: Cost ₹4,000 A; Expenditure ₹10,000 A; Volume ₹6,000 F; Efficiency ₹1,500 A; Capacity ₹4,500 A; Calendar ₹12,000 F. The extra working day helped, but overspending and idle plant hours reduced the gain.

Exam tips

  • Start with a data table of budget against actual. Most lost marks come from picking up a wrong figure.
  • Always show the standard rate and the absorbed overhead as separate lines. Examiners give step marks for them.
  • Do the final check (volume = efficiency + capacity + calendar) and write F or A against every answer.
  • In MCQs, look for the one variance asked and use the shortest route, for example the per unit rate for volume or Budget − Actual for expenditure.
  • Add one line of interpretation in written answers, naming the main cause and the likely action.

Practice questions from Standard Costing and Variance Analysis

Fixed Overhead Variances in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Fixed Overhead Variances: frequently asked questions

What is the difference between fixed overhead expenditure variance and volume variance?

Expenditure variance compares the budgeted fixed overhead with the actual amount spent. Volume variance compares the absorbed fixed overhead with the budgeted amount, so it shows the effect of producing more or less than planned. Together they make the cost variance.

How do you calculate the fixed overhead calendar variance?

Multiply the standard rate per day (or per hour) by the difference between actual and budgeted working days. In hours: standard rate per hour × (revised budgeted hours − budgeted hours). More days than budget gives a favourable variance.

What is the difference between capacity and efficiency variance in fixed overhead?

Capacity compares actual hours worked with revised budgeted hours, so it shows how well plant time was used. Efficiency compares standard hours for the actual output with actual hours, so it shows how fast the work was done.

Is there a price or usage variance for fixed overhead?

No. Fixed overhead is not split into price and usage. The spending difference is the expenditure variance, and the rest are volume-related variances.