Calculate a fixed-overhead expenditure variance
Compare actual fixed overhead with the budget for the same period and investigate the spending difference.
Section 4.2 · Standard costing
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.2 teaches standard costing, the listed material, labour, fixed-overhead and sales variances, their causes and relationships, and evidence-based business decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use Topic 2.1–2.2 cost behaviour, contribution and absorption-costing ideas. In each question, identify the period, actual output, budget and standard before calculating a variance.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
If actual fixed overhead exceeds its period budget, the expenditure variance is…
What you will learn
- Calculate fixed-overhead expenditure variance
- Use the stated period budget
- Distinguish spending from activity-volume effects
Compare actual fixed overhead with the period budget
Fixed-overhead expenditure variance = budgeted fixed overhead − actual fixed overhead when a cost saving is labelled favourable. If actual expenditure exceeds the budget, the result is adverse; if lower, it is favourable.
This variance measures the amount spent, not how much overhead was absorbed into production. Keep the period the same and use the actual fixed-overhead total supplied in the question.
Fixed-overhead expenditure variance = budgeted fixed overhead − actual fixed overhead
Investigate cost and classification
A difference may reflect rent, insurance, maintenance, utilities or changes in the time period or accounting classification. Although called fixed, some expenses can change through contracts or step changes; do not assume every fixed cost is unchanged forever.
Check the invoice, budget assumptions, accruals, one-off costs and whether the spending is controllable. A favourable underspend can result from cancelled maintenance or training and may harm future performance.
Pause and explain
Budget is $60,000; actual is $58,500. What is the expenditure variance?
Worked example
Budgeted fixed overhead is $92,000 and actual fixed overhead is $95,400 for the same month. Calculate the expenditure variance.
Show the worked solution
- Variance = budget − actual = 92,000 − 95,400.
- The result is −$3,400 under the saving-positive convention.
- Actual expenditure is higher, so label it adverse.
Answer $3,400 adverse fixed-overhead expenditure variance.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Budgeted fixed overhead is $140,000 and actual is $147,800. Calculate and label the variance.
Give me a hint
Subtract actual expenditure from the period budget.
Compare my reasoning
- 140,000 − 147,800 = −7,800.
- Actual cost is $7,800 above budget.
- The expenditure variance is adverse.
$7,800 adverse.
Look for these in your work
- Use same-period budget
- Difference is $7,800
- Label overspend adverse
Actual overhead is $46,200 against a budget of $48,000. Calculate the variance and name one possible concern about a favourable result.
Give me a hint
Calculate the underspend, then consider what activity may have been deferred.
Compare my reasoning
- 48,000 − 46,200 = $1,800.
- Actual expenditure is below budget, so the variance is favourable.
- Check whether the underspend came from a genuine saving or deferred maintenance, training or essential work.
$1,800 favourable; check that necessary maintenance and service were not postponed.
Look for these in your work
- Difference calculated
- Correct direction
- Non-financial/long-term check included
A school reports an adverse fixed-overhead variance because heating costs rose during a colder month. What comparison would make its explanation stronger?
Give me a hint
Compare weather, building use, tariffs, energy use and the budget assumptions.
Compare my reasoning
- Check the actual tariff and energy units consumed.
- Compare weather and opening hours with the budget basis and similar periods.
- Separate price from consumption where data allow before recommending operating changes.
Compare actual usage, tariff, weather and building hours with budget assumptions. The total overspend alone cannot distinguish price from consumption or unusual conditions.
Look for these in your work
- Usage and rate considered
- Budget assumptions checked
- Cause not inferred from the total alone
Common mistakes
- Using absorbed overhead instead of actual expenditure
- Comparing a month with an annual budget
- Assuming an underspend always represents better control
What can you explain now?
What does fixed-overhead expenditure variance compare?
Compare with the explanation
Actual fixed overhead with the period budget
It measures spending against the budget, separately from production-volume absorption.
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Make it stick
How does fixed-overhead expenditure differ from fixed-overhead volume?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.