Fixed overhead volume variance
Fixed overhead volume variance shows overhead over- or under-absorbed because actual production differed from the budget: (actual output − budgeted output) × standard fixed overhead rate per unit. Favourable when output exceeds the budget.
FrameworkStandard costing and variance analysis
What it is
See it move
The standard fixed overhead rate is €4 per unit, set by dividing budgeted fixed overhead by budgeted output of 10,000 units. Actual output reached 10,800 units, 800 more than planned, so an extra 800 × €4 = €3,200 of fixed overhead was absorbed into product cost — a favourable volume variance that says nothing about whether those extra units actually sold.
The formula
Variables
- actual units produced during the period (units)
- budgeted units to be produced during the period (units)
- standard fixed overhead rate per unit (budgeted fixed overhead ÷ budgeted output) (€ per unit)
Favourable when actual output exceeds the budget because more overhead is absorbed than budgeted; adverse when output falls short. A favourable result does not signal genuine cost improvement if extra units remain unsold in inventory.