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## 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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