Calculate a fixed-overhead volume variance
Measure whether actual output caused more or less fixed overhead to be absorbed than the budgeted amount.
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
A fixed-overhead absorption rate is commonly budgeted fixed overhead divided by…
What you will learn
- Calculate standard fixed-overhead absorption rate
- Find overhead absorbed for actual output
- Explain the volume variance as a capacity-use measure
Compare absorbed overhead with the period budget
At the standard absorption rate, overhead absorbed for actual output = standard hours allowed × standard fixed-overhead absorption rate per hour. Fixed-overhead volume variance = absorbed fixed overhead − budgeted fixed overhead; a positive amount is favourable because more overhead was absorbed than budgeted.
If the question gives a standard rate per unit, use standard units produced instead. Under a consistent fixed-overhead budget and rate, the volume variance can be split into capacity and efficiency sub-variances.
Fixed-overhead volume variance = absorbed fixed overhead − budgeted fixed overhead
Higher absorption is not automatically a cash saving
A favourable volume variance reflects production volume or capacity use relative to the budget. It does not mean fixed overhead cash spending fell. Fixed overhead may be under- or over-absorbed because output differed from the plan.
Avoid treating the variance as profit without considering the costing method and inventory movement. Use the variance to investigate capacity, downtime and output, not to encourage production that is unsupported by demand.
Pause and explain
Budget is $80,000; overhead absorbed for actual output is $84,000. What is the volume direction?
Worked example
Budgeted fixed overhead is $120,000 for 6,000 standard hours. Actual output allows 5,700 standard hours. Calculate the absorption rate and volume variance.
Show the worked solution
- Rate = $120,000 ÷ 6,000 = $20 per standard hour.
- Absorbed overhead = 5,700 × $20 = $114,000.
- Absorbed overhead is $6,000 below budget, so volume is adverse.
Answer The rate is $20 per standard hour and the fixed-overhead volume variance is $6,000 adverse.
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.
Budget fixed overhead is $150,000 for 10,000 standard hours. Actual output allows 9,200 hours. Find volume variance.
Give me a hint
Calculate the standard rate, then absorb it over standard hours allowed.
Compare my reasoning
- Rate = 150,000 ÷ 10,000 = $15/hour.
- Absorbed = 9,200 × 15 = $138,000.
- Absorbed overhead is $12,000 below budget.
$12,000 adverse fixed-overhead volume variance.
Look for these in your work
- Rate correct
- Absorbed amount correct
- Volume direction correct
The planned volume is 4,000 units with budgeted fixed overhead of $96,000. Actual output is 4,250 units and standard overhead rate is $24/unit. Calculate volume variance.
Give me a hint
Compare absorption for actual output with the budgeted fixed amount.
Compare my reasoning
- Absorbed = 4,250 × $24 = $102,000.
- Budgeted fixed overhead = $96,000.
- Absorbed exceeds budget by $6,000.
$6,000 favourable fixed-overhead volume variance.
Look for these in your work
- Use actual output with standard rate
- Compare against budget
- Label excess absorption favourable
A plant increases production above demand and reports favourable fixed-overhead volume. What should management check before repeating the plan?
Give me a hint
Include sales, inventory carrying, cash and quality rather than treating absorption as a saving.
Compare my reasoning
- Check whether extra units can be sold at the planned price.
- Consider inventory holding, obsolescence and working-capital costs.
- Compare capacity use with actual demand and total business objectives.
The favourable volume variance reflects absorption, not necessarily a business saving. Check demand, inventory cost and working capital before producing more.
Look for these in your work
- Sales demand checked
- Inventory and cash effects included
- Absorption distinguished from economic benefit
Common mistakes
- Using actual hours instead of standard hours allowed for actual output
- Calling an under-absorption a spending variance
- Producing unwanted stock just to create a favourable volume variance
What can you explain now?
What is compared in a fixed-overhead volume variance?
Compare with the explanation
Fixed overhead absorbed for actual output and the period budget
Volume captures absorption caused by output relative to the budget, not the spending difference.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
Why does a favourable fixed-overhead volume variance not prove that overhead spending fell?
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.