Fixed overhead volume variance
In one sentenceThe difference between budgeted fixed overhead and the amount absorbed into actual production at the standard rate, caused by a difference in production volume.
Simply put
You set a fixed rate per unit by dividing budgeted fixed costs by expected production. If you produce less than expected, not all of the amount is charged to units, and part remains unabsorbed; this is an unfavorable variance.
It does not mean you spent more, but that capacity was not used as planned. Its causes include weak demand, machine stoppages or material shortages.
Worked example
A confectionery factory budgeted fixed costs of 30,000 SAR to produce 1,200 boxes, so the rate is 25 SAR per box. It actually produced 1,000 boxes.
Standard rate per box30,000 ÷ 1,200 = 25 SAR
Absorbed into actual production1,000 × 25 = 25,000 SAR
Budgeted − Absorbed30,000 − 25,000 = 5,000 SAR
Volume variance (unused capacity, unfavorable)5,000 SAR
Formula: Budgeted fixed costs − (Actual production × Standard fixed rate per unit)
Don't confuse it with
Fixed overhead budget varianceIt compares actual spending with the budget and has nothing to do with production volume.