CA Intermediate · Cost and Management Accounting · Standard Costing
Bharat Castings budgets fixed overhead of Rs 6,00,000 for 20,000 units (standard 2 hours per unit, 40,000 hours). In the month, the actual fixed overhead was Rs 6,30,000. Actual output was 19,000 units and actual hours worked were 39,000. What is the fixed overhead capacity variance?
The fixed overhead capacity variance is Rs 15,000 Adverse. The standard rate is Rs 15 per hour, and actual hours worked of 39,000 fell 1,000 short of the budgeted 40,000 hours, so 1,000 x Rs 15 gives an adverse capacity variance of Rs 15,000.
- ARs 15,000 AdverseCorrect
- BRs 30,000 Adverse
- CRs 15,000 Favourable
- DRs 30,000 Favourable
Explanation
Standard rate = 6,00,000/40,000 = Rs 15 per hour. Budgeted hours for the period are 40,000 and actual hours 39,000. Capacity variance = (Actual hours - Budgeted hours) x Rate = (39,000 - 40,000) x 15 = Rs 15,000 Adverse. Rs 30,000 Adverse is the expenditure variance (6,30,000 - 6,00,000), a different variance.
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