Fixed Overhead Spending and Volume Variance Calculator
At month end the general ledger shows fixed overhead incurred and fixed overhead absorbed into production at standard. The gap is a variance, and this calculator splits it into the part caused by spending more than budget and the part caused by running below or above normal capacity.
Your numbers
Fixed overhead in the annual or period budget used to set the rate.
Capacity base used to set the predetermined rate, for example budgeted machine or labor hours.
Actual units produced multiplied by standard hours per unit.
Your results
Positive values are unfavorable (under-absorbed). Fixed overhead behaves as a fixed lump in the period, so there is no efficiency variance for fixed overhead in the two-way method.
Volume variance and net under-absorption vs standard hours allowed
Sweeps Standard hours allowed for actual output from 6000 to 14000, holding your other inputs fixed.
Variance reporting from live ERP data
Optional: ask how a monthly overhead variance pack could be assembled automatically.
Optional. The tool and every export work without this. No spam.
How to use it
Take budgeted fixed overhead and the normal hours used to set the rate, then enter actual fixed overhead and the standard hours allowed for what you actually produced. Allowed hours come from completed units times routing standard hours. The tool calculates the predetermined rate, the absorbed amount, the two variances and a check line that proves they add to the total under or over absorption.
The method behind it
The rate equals budgeted fixed overhead divided by normal hours. Absorbed overhead equals the rate times standard hours allowed.
- Spending variance = actual fixed overhead - budgeted fixed overhead.
- Volume variance = (normal hours - standard hours allowed) x rate.
- Under (over) absorbed = actual - absorbed = spending + volume.
- Volume variance is a capacity signal, not a cash overspend.
Reading results and common mistakes
A large unfavorable volume variance with a small spending variance means the plant spent what it planned but did not produce enough to absorb it, so look at demand, scheduling and downtime. A large spending variance points to maintenance, utilities, rent or salaried overtime. Mistakes include mixing a flexible budget level with the denominator hours, using actual hours instead of standard hours allowed, and forgetting that variable overhead is analyzed separately.
Frequently Asked Questions
Why is there no efficiency variance for fixed overhead?
Fixed overhead does not change with the hours actually worked, so any deviation from the allowed hours shows up in the volume variance. Efficiency variances apply to variable overhead, where cost moves with activity.
What denominator level should I use?
Practical capacity, normal capacity or expected annual volume are all used. The choice sets the rate and the size of the volume variance, so pick one policy and apply it consistently from year to year.
Is a favorable volume variance good?
It means you produced above the denominator level and absorbed more than budgeted. It is not automatically good, because building inventory that you cannot sell merely defers the overhead into inventory.
How does this map to SAP or Epicor?
In SAP CO, overhead variances are calculated at production order settlement and by period for cost centers. In Epicor, burden variances are tracked by job and in the GL. Compare those amounts with this split.
If your ERP posts overhead variance accounts monthly, we can set up a query that pulls them into this breakdown by plant and cost center.
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