What is the fixed overhead volume variance? Suppose that the fixed overhead volume variance is unfavorable; what does that mean?
The fixed overhead volume variance is the difference between budgeted fixed overhead and applied fixed overhead. Since the same fixed overhead rate applies to both the budgeted and applied amounts, the only difference must be between the budgeted direct labor hours and the standard direct labor hours for actual production. If the fixed overhead volume variance is unfavorable, then less was actually produced than was budgeted. There is excess capacity in the company. Managers can use that information in strategic planning to, possibly, take space and resources away from one area and give them to a growing area instead.
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