Fixed Overheads

Fixed overheads consist of costs which do not usually vary with the change in levels of output. In order to calculate a Fixed Overhead Variance, the Actual Fixed Overhead should be subtracted from the Budgeted Fixed Overhead as follows:

Fixed Overhead Variance

=  Budgeted Fixed Overheads £2,000
less:
Actual
Fixed Overheads £2,000
Variance Nil

In exceptional circumstances, a variance may occur and then the resulting difference is treated in the same way as other variances, i.e.

Example

  OR  
Budgeted fixed overheads £2000     Budgeted fixed overheads £2000  
Actual fixed overheads £2250 Actual fixed overheads £1924
Variance £250 -(A) Variance £76 +(F)

N.B. Exceptional circumstances might include a change of premises, rates revaluations or changes in borrowing rates.

Now try the following SAQ: