Fixed Manufacturing Overhead Variance

Learning Outcomes

  • Compute the fixed manufacturing overhead variance

Fixed Overhead Variance

Because fixed overhead is not constant on a per-unit basis, any deviation from planned production causes the overhead application rate to be incorrect. We can calculate a fixed overhead variance by comparing:

Actual fixed overhead – Budgeted fixed overhead = Fixed Overhead variance

For Boulevard Blanks, the budgeted fixed overhead was $13,365 (notice the level of production does not matter since fixed costs remain the same regardless of volume) and the actual fixed overhead costs were $13,485.

Boulevard Blanks
Partial Income Statement
For the month ended July 31, 20XX
Actual Budget
Sales revenue $        178,200.00 $        178,200.00
Subcategory, Variable manufacturing costs Single Line Single Line
      Direct materials           38,080.00           38,880.00
      Direct Labor           46,500.00           43,740.00
      Allocated overhead             1,395.00             1,944.00
Subcategory, Fixed manufacturing costs
      Allocated overhead           13,485.00           13,365.00
Cost of Goods Manufactured and sold Single Line          99,460.00 Single Line          97,929.00
Gross Profit Single Line$        78,740.00Double line Single Line$        80,271.00Double line

Fixed Overhead variance = Actual fixed overhead – Budgeted fixed overhead

= $13,485 actual fixed – $13,365 budgeted

= $120 unfavorable variance

This variance is unfavorable since we spent more on fixed costs than we had planned.

The module on allocating manufacturing overhead and the module on flexible and static budgeting will delve more deeply into the topic of manufacturing overhead variances.

Before you move on, check your understanding of the fixed manufacturing overhead budget variance.

Practice Question