# Fixed Overhead Variances — Unit Basis

Fixed Overhead (FOH) variances analyse the difference between recovered (absorbed) FOH and actual FOH. Unlike variable overheads, FOH varies based on volume rather than rate alone.

## Three Key FOH Amounts

Amount	Source
Budgeted FOH	Given in question — planned FOH for the period
Actual FOH	Given in question — FOH actually incurred
Recovered FOH	Calculated — also called Standard FOH for Actual Output

## Formula for Recovered FOH

$$\text{Recovered FOH} = \frac{\text{Budgeted FOH}}{\text{Budgeted Units}} \times \text{Actual Output}$$

## The Variance Tree

```

TOTAL FIXED OH COST VARIANCE

Recovered FOH − Actual FOH

│

┌─────────┴─────────┐

│ │

FOH EXPENDITURE FOH VOLUME

VARIANCE VARIANCE

Budgeted − Actual Recovered − Budgeted

FOH FOH FOH FOH

```

## Verification

Expenditure Variance + Volume Variance = Total Cost Variance

(Budgeted − Actual) + (Recovered − Budgeted) = Recovered − Actual ✓

Worked example

### Example 1

Example: Budgeted FOH = ₹50,000 for 10,000 units. Actual output = 9,000 units. Actual FOH = ₹52,000.

Recovered FOH = (50,000/10,000) × 9,000 = ₹45,000
Total Cost Variance = 45,000 − 52,000 = ₹7,000 (A)
Expenditure Variance = 50,000 − 52,000 = ₹2,000 (A)
Volume Variance = 45,000 − 50,000 = ₹5,000 (A)
Check: 2,000 + 5,000 = 7,000 ✓

⚠️ Common exam mistakes

Comparing Actual FOH with Recovered FOH for expenditure variance — expenditure uses Budgeted FOH, not Recovered.
Forgetting that Volume Variance is favourable when actual output exceeds budgeted output.
Using actual rate instead of standard rate when calculating Recovered FOH.
Treating FOH as if it changes with output (it doesn't — that's the whole point of FIXED overhead).

Reference:

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Fixed Overhead Variances (Unit Basis)

Worked example

⚠️ Common exam mistakes