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.
| 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.
