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Fixed overhead volume variance

The fixed overhead volume variance measures the difference between fixed production overhead absorbed for actual output and the fixed-overhead budget under a standard absorption system. Using a rate per standard hour, it is (standard hours for actual output − budgeted hours) × fixed overhead rate. It can be split into capacity and efficiency components. It does not represent additional cash fixed costs caused by the output difference and is not a standard marginal-costing variance.

Worked example

Budgeted hours are 10,000, actual output represents 9,000 standard hours and fixed rate is $5. Volume variance is 1,000 × $5 = $5,000 adverse.

Common mistake

A volume variance is an allocation effect relative to the budget, not proof that the same amount of extra cash was spent.

Where it appears in your exams

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