fixed production overhead volume capacity variance

Popular Terms
The difference between the actual number of hours worked and the budgeted number of hours. This figure is then multiplied by the overhead rate for an hour of labor. For example, if a company budgeted 1,000 labor hours at an overhead rate of $10/hour, but actually used 1,200 labor hours it would have an adverse variance of 200 hours (1,200 - 1,000). This variance would be multiplied by the overhead rate (200 hours x $10/hour) to show a fixed production overhead volume capacity variance of $2,000. When calculating fixed production overhead volume capacity variance, note that more hours being worked than budgeted creates an over-absorption of overhead, which in this case is favorable.


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