Fixed overhead volume variance is the difference between fixed overhead applied to good units produced during a given accounting period and the total fixed overheads budgeted for the period. Fixed overhead volume variance occurs when the actual production volume differs from budgeted production. In this way it measures whether or not the fixed production resources have been efficiently utilized.

Fixed overhead volume variance is favorable when the applied fixed overhead exceeds the budgeted amount. This is because the units produced in such case are more than the quantity expected from current production capacity and this reflects efficient use of fixed resources. The standard fixed overhead applied to units exceeding the budgeted quantity is saved in the form of over-applied overhead. The result is lower actual unit costs and higher profitability than budgeted figures. An unfavorable fixed overhead volume variance occurs when the fixed overhead applied to good units produced falls short of the total budged fixed overhead for the period. This is because of inefficient use the fixed production capacity.

Fixed overheads may be applied to production using a predetermined overhead rate calculated by dividing estimated total fixed costs during the period by the budget units of a cost basis such as units produced, total machine hours etc.

Fixed overhead volume variance is one of the two components of total fixed overhead variance, the other being fixed overhead budget variance. There are two sub-components of fixed overhead volume variance:

• FOH volume capacity variance
• FOH volume efficiency variance

## Formulas

Here we will assume, number of units as the basis for applying fixed costs to production. The formula to calculate various different bases two of the most common being the number of units and machine hours.

As per above formulas, a positive value of fixed overhead volume variance is favorable whereas a negative value is unfavorable. The figures required in the above formula can be calculated as follows:

Applied Fixed Overhead = Standard Fixed Overhead Rate × Standard Hours Allowed

 Budgeted Fixed Overheads $50,000 Budgeted Units 10,000 Actual Units Produced 10,700 Solution  Fixed Overhead Application Rate =$50,000 = $5 per unit 10,000 Applied Fixed Overhead = 10,700 ×$5 = $53,500 Fixed Overhead Volume Variance =$53,500 – $50,000 =$3,500 Favorable