If actual capacity used exceeds expected capacity, the fixed overhead volume variance is favorable.

Question

Quizplus · Accepted Answer

This is because the fixed overhead volume variance measures the difference between the fixed overhead costs that were budgeted for a certain level of activity and the actual fixed overhead costs incurred for a different level of activity. If the actual capacity used exceeds the expected capacity, it means that more activity was achieved than budgeted for, which leads to a favorable variance as fixed overhead costs are spread out over a larger volume of activity.

If Actual Capacity Used Exceeds Expected Capacity, the Fixed Overhead