Home » Standard Costing and Variance Analysis » Fixed Overhead Efficiency Variance

Formula:

Following formula is used for the calculation of this variance:

 Fixed overhead efficiency variance = (Actual hours × Fixed overhead rate) - (Standard hours allowed × Fixed overhead rate)

Fixed overhead efficiency variance is calculated when overall or net overhead variance is further analyzed using four variance method. Other three variances that are calculated in four variance method are overhead spending variance, variable overhead efficiency variance and overhead idle capacity variance.

Example:

From the following data calculate fixed overhead efficiency variance:

 Actual overhead \$7,384 Actual hours worked 3,475 Units produced during the period 850 Standard hours for one unit 4 Standard factory overhead rate: Variable \$1.20 Fixed \$0.80 \$2.00 Normal Capacity in labor hours 4000 hours

Solution:

 3,475 Actual hours worked × \$0.80 fixed overhead rate 2780 3,400 Standard hours allowed × \$0.80 fixed overhead rate 2720 Fixed overhead efficiency variance (unfavorable) \$60 unfav

When variable overhead efficiency variance and fixed overhead efficiency variance are combined, they equal the overhead efficiency variance.

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A D V E R T I S E M E N T

 Financial Accounting Topics Introduction to Accounting ---------------------------------------------------------------------------- Transactions and Accounting Equation ---------------------------------------------------------------------------- Analysis of Business Transactions ---------------------------------------------------------------------------- Journal, Ledger and Trial Balance ---------------------------------------------------------------------------- Accounting for Bills of Exchange ---------------------------------------------------------------------------- Special Journals ---------------------------------------------------------------------------- Cash Book ---------------------------------------------------------------------------- Bank Reconciliation Statement ---------------------------------------------------------------------------- Final Accounts ---------------------------------------------------------------------------- Work Sheet ---------------------------------------------------------------------------- Capital and Revenue Items ---------------------------------------------------------------------------- Valuation of Inventories ---------------------------------------------------------------------------- Accounts of Non-profit Making Organizations ---------------------------------------------------------------------------- Statement of Cash Flows ---------------------------------------------------------------------------- Accounting Ratios Analysis ---------------------------------------------------------------------------- Depreciation, Provisions and Reserves ---------------------------------------------------------------------------- Accounting Dictionary ---------------------------------------------------------------------------- Financial Calculators

 Managerial Accounting Topics Financial Statements ---------------------------------------------------------------------------- Cost Volume Profit Relationship ---------------------------------------------------------------------------- Variable Costing System ---------------------------------------------------------------------------- Materials and Inventory Cost Control ---------------------------------------------------------------------------- Activity Based Costing System ---------------------------------------------------------------------------- Standard Costing and Variance Analysis ---------------------------------------------------------------------------- Balanced Scorecard ---------------------------------------------------------------------------- Capital Investment Analysis/Capital Budgeting