>

In variance analysis, the total fixed overhead variance may be split into two: **spending variance** and **volume variance**. The *fixed overhead spending variance* refers to the difference between the actual and budgeted fixed factory overhead. It is also known as *fixed overhead budget variance*.

Contents

- Definition of fixed spending variance
- Formula
- Example
- Favorable and unfavorable variance

The formula for fixed factory overhead (FFOH) spending or budget variance is:

*FFOH spending variance = Actual fixed overhead - Budgeted fixed overhead*

The actual fixed cost of fixed factory overhead is compared to the budgeted amount. This determines whether the production department spent more or less than budget and how material the difference is. Further investigation is conducted to determine whether such difference is reasonable.

XYZ Company has a fixed factory overhead budget of $220,000 for a budgeted production (normal capacity) of 10,000 units of its product. One unit needs 2.75 labor hours to complete -- requiring to a total of 27,500 hours. XYZ produced 9,600 units and employed 29,000 direct labor hours. The actual fixed factory overhead is $221,500. Compute for the fixed overhead spending variance.

FFOH spending variance | = | Actual FFOH - Budgeted FFOH |

= | $221,500 - $220,000 | |

FFOH spending variance | = | $1,500 unfavorable |

The actual fixed factory overhead of $221,500 is compared with the budgeted fixed factory overhead of $220,000. The company spent $1,500 more than the amount budgeted.

If the actual FFOH is greater than the budgeted amount, the variance is **unfavorable** since the company paid more than what it expected. If the actual FFOH is lower than the budgeted, the variance is **favorable**.

More topics

Who we are

Accountingverse is your prime source of expertly curated information for all things accounting more..

Featured pages

BIG

4

4

Big 4 Accounting Firms

Who are they?

Who are they?

CPA CMA etc.

Accounting Certifications

Boost your career potential

Boost your career potential

101

Accounting Basics

Lessons & tutorials

Lessons & tutorials

Copyright © 2021 – Accountingverse.com

Your Online Resource For All Things Accounting

Your Online Resource For All Things Accounting