Question

Explain why there is no efficiency variance for fixed manufacturing overhead costs.

Answer 1

As fixed overhead is fixed in nature regardless of the output produced. So managers cannot be more or less efficient when it deals with the fixed overhead. The result is that while calculating flexible budget variance amount is same as the spending variance for fixed overhead, so there is no efficiency variance. In short we can say flexible budget variance is equal to sum of efficiency and spending variance and being efficiency variance 0(zero), it is equal to spending variance. Hence, we can say as the managers are not able to control this cost as the nature of expense is fixed, so they cannot have more or less efficiency which proves the statement that there is never an efficiency variance for fixed manufacturing overhead.