Fixed Overhead Efficiency Variance Formula

Fixed Overhead Efficiency Variance Formula

Fixed overhead efficiency variance formula is given below. Fixed overhead efficiency concept or formula has been explained with an example.

Fixed overhead efficiency variance = Standard rate (Standard hour – Actual Hrs)

Fixed overhead efficiency variance is primarily difference between actual hour during the production and standard hour for such production level. This difference is expressed in term of standard rate of absorption per hour.

Fixed Overhead Efficiency Variance Formula Example

Unit produced by the Company = 7000

Standard hrs per Unit = 6 Hr per unit

Actual Hours Production Hrs = 40,000

Standard Rate per hour = $ 8

Solution

Standard Hours = Production x standard hours =

7000 units x 6 hr= 42,000 hrs

Fixed overhead efficiency variance = Standard rate (Standard Hours – Actual Hours)

= $ 8 x (42,000-40,000)

= $ 8 x 2000

= $ 16000

Favorable and Adverse Fixed Overhead Variance

If actual hours taken or worked are less than standard, then it is a favorable fixed overhead efficiency variance, and when actual hours are more than standard hours, then it is adverse fixed overheads efficiency variance. it is important to note that this variance only reflect the efficiency and does not give idea about actual fixed overheads expenditure.

Fixed Overhead Efficiency Variance Formula Question

Total production = 9000 Units

Standard Hours Required per Unit = 8 Hr/ unit

Actual Production Hours = 65,000

Standard Rate per hour = $ 12