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Home Standard Costing and Variance Analysis Fixed Overhead Efficiency Variance
 
 

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.

Relevant Articles:

Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing




 

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