Fixed Overhead Variance
The fixed overhead spending variance is the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs. It measures the variation between the actual costs of fixed overhead and the costs that were anticipated in the budget.
Calculation
The fixed overhead spending variance is calculated by subtracting the budgeted fixed overhead costs from the actual fixed overhead costs. The formula for calculating the fixed overhead spending variance is as follows:
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Fixed Overhead Spending Variance = Actual Fixed Overhead Costs – Budgeted Fixed Overhead Costs
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Interpretation
A favorable fixed overhead spending variance occurs when the actual fixed overhead costs are lower than the budgeted costs, indicating cost savings. Conversely, an unfavorable variance occurs when the actual costs exceed the budgeted costs.
No Efficiency Variance
Unlike variable overhead costs, fixed overhead costs are not typically driven by activity levels. Therefore, there is no efficiency variance associated with fixed overhead costs. This means that the fixed overhead spending variance is solely a result of differences between the actual and budgeted fixed overhead costs.
Conclusion
The fixed overhead spending variance is a useful tool for managers to assess the efficiency of their cost control efforts. A favorable variance indicates that the company is effectively managing its fixed overhead costs, while an unfavorable variance suggests that there may be areas where costs can be reduced.
References
- https://biz.libretexts.org/Bookshelves/Accounting/Managerial_Accounting/10%3A_How_Do_Managers_Evaluate_Performance_Using_Cost_Variance_Analysis/10.09%3A_Fixed_Manufacturing_Overhead_Variance_Analysis
- https://saylordotorg.github.io/text_managerial-accounting/s14-08-fixed-manufacturing-overhead-v.html
- https://www.investopedia.com/terms/v/variable-overhead-spending-variance.asp
FAQs
What is fixed overhead spending variance?
Fixed overhead spending variance is the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.
How is fixed overhead spending variance calculated?
Fixed overhead spending variance is calculated by subtracting the budgeted fixed overhead costs from the actual fixed overhead costs.
What does a favorable fixed overhead spending variance indicate?
A favorable fixed overhead spending variance occurs when the actual fixed overhead costs are lower than the budgeted costs, indicating cost savings.
What does an unfavorable fixed overhead spending variance indicate?
An unfavorable fixed overhead spending variance occurs when the actual fixed overhead costs exceed the budgeted costs, suggesting areas where costs can be reduced.
Is there an efficiency variance for fixed overhead costs?
No, there is no efficiency variance for fixed overhead costs because they are not typically driven by activity levels.
What are some common causes of favorable fixed overhead spending variances?
Common causes of favorable fixed overhead spending variances include cost-saving measures, bulk discounts, and efficient cost controls.
What are some common causes of unfavorable fixed overhead spending variances?
Common causes of unfavorable fixed overhead spending variances include increased costs of fixed overhead items, ineffective cost controls, and errors in budgetary planning.
How can managers use fixed overhead spending variance to improve cost control?
Managers can use fixed overhead spending variance to identify areas where fixed overhead costs can be reduced. By analyzing the variance, managers can determine the root causes of unfavorable variances and take steps to mitigate them.