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Standard costing

7.2 Splitting the volume variance

If fixed overheads are absorbed based on hours then the volume variance can be
split into capacity and efficiency

Capacity variance $

Actual hours × FOAR per hour X
Less: Budgeted expenditure Y

–––––
Fixed overhead capacity variance X – Y

–––––

Efficiency variance $
Standard hours × FOAR per hour X

Actual hours × FOAR per hour Y
–––––

Fixed overhead efficiency variance X – Y
–––––

Illustrations and further practice

Now try TYU question 8 from Chapter 15.

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