Fixed overhead capacity variance
Fixed overhead capacity variance is the part of the fixed overhead volume variance caused by actual hours worked differing from budgeted hours, showing whether the factory operated more or less than planned.
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A factory budgets 6,000 hours but actually works 6,300, 300 hours more than planned. At the €20-per-hour fixed overhead absorption rate, those extra hours absorb 300 times €20, or €6,000 favourable — the effect of running longer than budgeted, regardless of how efficiently the time was used.
Where it fits
SubjectManagerial AccountingAdvancedTopicStandard Costing & Variance AnalysisAdvanced
The formula
LaTeX
Variables
- Fixed overhead capacity variance (€)
- Actual hours worked in the period (hours)
- Budgeted hours for the period (hours)
- Fixed overhead absorption rate per hour (budgeted fixed overhead ÷ budgeted hours) (€ per hour)
Isolates whether the factory worked more or fewer hours than budgeted, at the standard fixed overhead rate per hour.