Definition of fixed overhead volume (denominator) variance

measure of utilization of plant facilities. It results when the actual activity level is measured in direct labor-hours, machine-hours, and so on. Differs from the budgeted denominator) uantity used in determining the fixed overhead standard rate.
Fixed Overhead Volume Variance
= Budgeted Fixed Overhead - Fixed Overhead Applied
or
= (Denominator Hours - Standard Hours Allowed)
Fixed Overhead Standard Rate
The variance is unfavorable if the denominator hours exceed the standard hours allowed; it is favorable in the opposite case. For example, assume actual fixed overhead costs were $31,000. The denominator activity in machine-hours was 5000 and the fixed overhead applied rate is $6. The budgeted fixed overhead costs are then $30,000 (5000 denominator hours ¥ $6). The standard machine-hours allowed was 4000. The fixed overhead volume variance is (5000 - 4000) ¥ $6 = $6000, which is unfavorable because of the company's failure to operate at the budgeted (denominator) activity level. This may be caused by machine breakdowns, poor production scheduling, or failure to meet sales goals.