Enter the actual fixed overhead value in currency.
Enter the budgeted fixed overhead value in currency.
History:

Explanation

What is Fixed Overhead Variance?

Fixed overhead variance is the difference between the actual fixed overhead costs incurred and the expected fixed overhead costs based on the budgeted production volume. Understanding this variance is crucial for businesses to manage their costs effectively and make informed financial decisions.

How to Calculate Fixed Overhead Variance?

The fixed overhead variance can be calculated using the following formula:

Fixed Overhead Variance (FOV):

§§ FOV = Actual Fixed Overhead - Expected Fixed Overhead §§

Where:

  • § FOV § — Fixed Overhead Variance
  • § Actual Fixed Overhead § — The actual costs incurred for fixed overhead.
  • § Expected Fixed Overhead § — The budgeted fixed overhead costs based on the production volume.

To determine the expected fixed overhead, you can use the formula:

Expected Fixed Overhead:

§§ Expected Fixed Overhead = (Budgeted Fixed Overhead / Budgeted Production Volume) × Actual Production Volume §§

Example Calculation

  1. Given Values:

    • Actual Fixed Overhead: $1,000
    • Budgeted Fixed Overhead: $1,200
    • Budgeted Production Volume: 100 units
    • Actual Production Volume: 90 units

  2. Calculate Expected Fixed Overhead:

    • Expected Fixed Overhead = ($1,200 / 100) × 90 = $1,080

  3. Calculate Fixed Overhead Variance:

    • FOV = $1,000 - $1,080 = -$80

This result indicates that the actual fixed overhead is $80 less than expected, which is a favorable variance.

When to Use the Fixed Overhead Variance Calculator?

  1. Cost Management: To analyze and control fixed overhead costs in your business.

    • Example: Identifying discrepancies between budgeted and actual overhead costs.

  2. Budgeting: To refine future budgets based on past performance.

    • Example: Adjusting budgeted overhead based on actual production levels.

  3. Performance Evaluation: To assess the efficiency of production processes.

    • Example: Evaluating how well the company is managing its fixed costs relative to production.

  4. Financial Reporting: To provide insights into cost variances for stakeholders.

    • Example: Reporting variances in financial statements to investors or management.

Practical Examples

  • Manufacturing: A manufacturing company can use this calculator to determine if they are over or under-spending on fixed overhead costs compared to their production levels.
  • Service Industry: A service-based business can analyze fixed costs related to office space and utilities against the number of clients served.
  • Project Management: Project managers can evaluate fixed overhead variances to ensure projects stay within budget.

Key Terms

  • Actual Fixed Overhead: The total fixed costs incurred during a specific period.
  • Budgeted Fixed Overhead: The estimated fixed costs planned for a specific period based on expected production levels.
  • Production Volume: The number of units produced during a specific period.

Use the calculator above to input your values and dynamically see the fixed overhead variance. The results will help you make informed decisions based on your financial data.