Fixed Overhead Efficiency Variance (Simplified)

Fixed overhead efficiency variance tells us the difference between the standard fixed overhead cost and actual fixed overhead cost. It has two parts. One is fixed expenditure overhead variance and second is fixed volume overhead variance. There are three parts of fixed volume overhead variance. One of important part of fixed volume overhead variance is fixed overhead efficiency variance. This variance tells us the difference between standard working hours of actual output and actual working hours after  multiplying  this with the standard rate of overhead per hour. Following is its formula

Fixed Overhead Efficiency Variance

= Standard rate per hour X ( standard working hours of actual output - actual working hours)

Standard working hours of actual output = Standard working hours for producing one unit X Actual output

Standard working hours for producing one unit = Standard working hours / standard output

Standard Working Hours =  Standard Overhead Cost / Standard Overhead rate per hour

If actual working hours are 250, actual overhead cost is Rs. 100, standard rate of overhead per hour is Rs. 1 per hour, standard output is 200 units and actual output is 300, calculate fixed overhead efficiency variance.


Standard Working Hours =  Standard Overhead Cost / Standard Overhead rate per hour


= 100 / 1 = 100 hours


Standard working hours for producing one unit = Standard working hours / standard output


= 100 hrs / 200 units = 0.50 hr


Standard working hours of actual output = Standard working hours for producing one unit X Actual output


= 0.50 hr X 300 =  150 hours


FOEV = Standard rate per hour X ( standard working hours of actual output - actual working hours)


= Rs. 1 X ( 150 hours - 250 hours ) = - Rs 100 ( Unfavorable)

If our standard working hours of actual output will be more than actual working hours, at that time, our fixed overhead efficiency variance will be favorable. 

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Accounting Education: Fixed Overhead Efficiency Variance (Simplified)
Fixed Overhead Efficiency Variance (Simplified)
Accounting Education
http://www.svtuition.org/2012/05/fixed-overhead-efficiency-variance.html
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http://www.svtuition.org/2012/05/fixed-overhead-efficiency-variance.html
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