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Fixed overhead efficiency variance

The fixed overhead efficiency variance values standard hours for actual output compared with actual hours at the standard fixed-overhead absorption rate. Under favourable-positive convention it is (standard hours − actual hours) × rate. Together with capacity variance it reconciles the fixed-overhead volume variance. It is a standard absorption allocation measure; it does not mean fixed spending changes directly with each hour saved or used.

Worked example

Standard hours produced are 9,000, actual hours 9,500 and fixed rate $5. Efficiency variance is $2,500 adverse; with $2,500 adverse capacity, volume is $5,000 adverse.

Common mistake

Do not add this component to a volume variance already containing it, or interpret it as an immediate cash saving.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027