Factory Overhead Cost Elements Quiz

Fixed overhead costs do not change with increases in production levels.

Variable overhead costs fluctuate according to levels of production.

Factory overhead variance is separated into a quality variance and a volume variance.

The controllable variance measures the efficiency and effectiveness of the management in controlling overhead costs.

Variable overhead costs are easier to pin down and keep within a budget compared to fixed overhead costs.

Factory overhead cost includes both fixed and variable cost elements.

Factory Overhead Cost

Factory overhead cost includes fixed and variable cost elements

Fixed Cost Elements

Fixed overhead does not change with increases in levels of production
Examples of fixed overhead include:
- Mortgage or rent for buildings such as a headquarters office
- Salaries for administrative staff, managers, and supervisors
- Taxes and insurance

Variable Cost Elements

Variable overhead fluctuates according to levels of production
Examples of variable overhead include:
- Production supplies
- Energy costs to run production lines
- Wages for those handling and shipping the product
Variable overhead moves in tandem with changes in production output

Factory Overhead Variance

Factory overhead variance is separated into controllable variance and volume variance

Controllable Variance

Reflects the difference between actual overhead costs incurred and budgeted overhead costs
Measures the efficiency and effectiveness of management in controlling overhead costs
Includes only costs that management can control or influence directly

Volume Variance

Arises due to the difference between budgeted level of activity and actual level of activity achieved
Measured in terms of standard hours or machine hours

Test your knowledge on the components of factory overhead costs, including fixed and variable cost elements. Learn about examples of fixed overhead costs like rent and salaries, as well as the fluctuating nature of variable overhead costs.