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

Case: Sahyadri Auto Ltd uses standard costing. Budgeted fixed overheads were Rs 6,00,000 for 30,000 standard labour hours (Rs 20 per hour); 10,000 units were budgeted at 3 hours each. Actual output was 9,500 units, taking 30,400 actual hours, and actual fixed overheads were Rs 6,10,000. Calculate the fixed overhead capacity variance and efficiency variance.

Capacity variance is Rs 8,000 favourable because 400 more hours than budget were worked at Rs 20. Efficiency variance is Rs 38,000 adverse because output needed only 28,500 standard hours but 30,400 were used.

  1. ACapacity Rs 8,000 favourable; efficiency Rs 38,000 adverseCorrect
  2. BCapacity Rs 8,000 adverse; efficiency Rs 38,000 favourable
  3. CCapacity Rs 8,000 favourable; efficiency Rs 30,000 adverse
  4. DCapacity Rs 10,000 adverse; efficiency Rs 38,000 adverse

Explanation

Capacity = (actual hours 30,400 - budgeted 30,000) x Rs 20 = Rs 8,000 favourable. Standard hours for actual output = 9,500 x 3 = 28,500; efficiency = (28,500-30,400) x 20 = Rs 38,000 adverse. Together they give the volume variance of Rs 30,000 adverse (recovered 5,70,000 vs 6,00,000), which is not the efficiency figure alone.

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