Calculating the Fixed Overhead Expenditure Variance

A fixed overhead expenditure variance. (sometimes referred to as fixed overhead spending variance)

This is a simple variance to calculate as it is purely the difference between what a company budgeted to spend on their fixed overheads in total vs. The actual amount spent on fixed overheads.

• If a company spends more than they budgeted on fixed overheads this will be an adverse variance
• If a company spends less than they budgeted on fixed overheads this will be a favourable variance

Example

At the start of a period XYZ Limited estimates that they will incur £30,000 of fixed overheads.By the end of the period they had actually spent £28,000 on fixed overheads.

To calculate the variance we work out if more or less was spent than intended. Because less was spent than expected we know the variance will be favorable.

30,000-28,000 = 2,000

Therefore the variance is £2,000 Favourable

By analysing variances a business is able to quickly see how well it is performing in terms of meeting budget expectations. If considerable differences are noted within fixed overhead expenditure it is worth investigating why this is the case. Fixed overheads do not tend to change unexpectedly so if there has been an increase in spending in this area a business needs to find out the reason as soon as possible.