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
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
