What are fixed overhead variances?

What are fixed overhead variances?

• A. Differences between expected and actual fixed costs
• B. Adjustments made to variable costs during budgeting
• C. Variances that occur due to seasonal fluctuations
• D. Changes in fixed costs relating to sales patterns

Answer: (A)

Fixed overhead variances are defined as the differences between the expected (or budgeted) fixed costs and the actual fixed costs incurred during a specific period. This variance helps management evaluate how well they have controlled fixed overhead expenditures compared to their planning. In management accounting, understanding fixed overhead variances is crucial because these costs do not change with the level of production in the short term. If actual fixed overhead costs are higher than budgeted, it signifies inefficiencies or unexpected expenses, while lower actual costs can indicate effective cost control or favorable conditions. This variance is particularly important for management decision-making, as it can influence budgeting for future periods as well as operational assessments. The identification of fixed overhead variances allows organizations to take corrective actions if necessary and plan more accurately for upcoming financial periods. The other options refer to different concepts that do not align with the definition of fixed overhead variances, focusing instead on variable costs, seasonal effects, or sales patterns, which are outside the scope of fixed overhead variance analysis.

Fixed overhead variances are defined as the differences between the expected (or budgeted) fixed costs and the actual fixed costs incurred during a specific period. This variance helps management evaluate how well they have controlled fixed overhead expenditures compared to their planning.

In management accounting, understanding fixed overhead variances is crucial because these costs do not change with the level of production in the short term. If actual fixed overhead costs are higher than budgeted, it signifies inefficiencies or unexpected expenses, while lower actual costs can indicate effective cost control or favorable conditions.

This variance is particularly important for management decision-making, as it can influence budgeting for future periods as well as operational assessments. The identification of fixed overhead variances allows organizations to take corrective actions if necessary and plan more accurately for upcoming financial periods.

The other options refer to different concepts that do not align with the definition of fixed overhead variances, focusing instead on variable costs, seasonal effects, or sales patterns, which are outside the scope of fixed overhead variance analysis.