Accounting Assignment Help With Fixed Overhead Variances

Fixed Overhead Variances

The treatment of these variances differ from that of variable overhead variable because of the fact that the fixed overheads are incurred anyway and do not vary with change in production levels. These have to be apportioned to production on a basis. Now the standard recovery rate is fixed by considering the budgeted fixed overhead by budgeted or normal volume, regardless of actual activity. It also can be on the basis of managements idea of normal volume, which may considerably differ from actual volume or even actual time taken. So when overheads are actually incurred, they may be over recovered or under-recovered.  This over or under recovery is known as the variance. Now this variance can be on the basis of output (in units) or standard time

1. Fixed Overhead Variance : It is also called fixed overhead cost variance by some writers, and represents the total fixed overhead variance. Actually it is the difference between the Standard fixed overhead charged on the basis of actual fixed overhead.

Symbolically we can express it as:

Fixed Overhead Variance may be further subdivided into tow:

1) Fixed overhead volume variance

2) Fixed overhead expenditure variance

1) Fixed Overhead Volume Variance: Also called as activity variance by some writers, this is the difference between the Budgeted hours based on normal volume and the standard hours for actual output. Now the variance occurs because all the overheads cannot actually be absorbed or may be over absorbed in some cases.

Symbolically we can compute this variance as follows:

Fixed overhead volume variance

= Standard Rate of recovery of fixed overheads X (Standard hours – Budgeted hours)

Where,

Budgeted fixed overheads

Standard rate of recovery of fixed overheads = -----------

Budgeted hours

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