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CMA Final · Strategic Cost Management · Variance Analyses

A firm sets standard variable overhead at Rs 8 per machine hour. For 3,000 units, standard is 2 machine hours per unit. Actual output was 3,000 units, actual machine hours were 6,300 and actual variable overhead was Rs 52,290. What is the variable overhead expenditure variance?

The variable overhead expenditure variance is Rs 1,890 adverse. Actual hours of 6,300 at the standard rate of Rs 8 give Rs 50,400, while actual spending was Rs 52,290, so spending exceeded the flexed allowance by Rs 1,890.

  1. ARs 1,890 AdverseCorrect
  2. BRs 1,890 Favourable
  3. CRs 2,400 Adverse
  4. DRs 2,400 Favourable

Explanation

Budgeted overhead for actual hours = 6,300 x Rs 8 = Rs 50,400. Expenditure variance = 50,400 - 52,290 = Rs 1,890 Adverse. Efficiency variance would be (6,000 - 6,300) x 8 = Rs 2,400 Adverse, which is a different variance.

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