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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Kaveri Foods Ltd, Pune, makes packaged snacks. Budgeted output for April was 20,000 packs at a standard variable overhead of Rs 6 per pack. Actual output was 22,000 packs and actual variable overhead incurred was Rs 1,38,600. Taking the output-based standard, what is the variable overhead total variance?

The variance is Rs 6,600 adverse. Standard variable overhead is measured on actual output, 22,000 packs at Rs 6, giving Rs 1,32,000. Actual spending of Rs 1,38,600 exceeds this by Rs 6,600, so the variance is adverse. Comparing with budgeted output would ignore flexing.

  1. ARs 6,600 AdverseCorrect
  2. BRs 6,600 Favourable
  3. CRs 18,600 Adverse
  4. DRs 12,000 Adverse

Explanation

Standard variable overhead for actual output = 22,000 x 6 = Rs 1,32,000. Actual cost is Rs 1,38,600, so the variance is Rs 6,600 adverse. Rs 18,600 wrongly compares actual cost with the budgeted output cost of Rs 1,20,000, ignoring the flexing of output.

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