CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis
Gamma Fabrics Ltd budgets fixed overheads of ₹3,00,000 for 10,000 units. In the month, actual output was 9,000 units and actual fixed overheads were ₹2,80,000. What is the fixed overhead cost variance?
The fixed overhead cost variance is ₹10,000 Adverse. Absorbed overhead on 9,000 units at ₹30 is ₹2,70,000, while actual spending was ₹2,80,000, so the firm under-recovered by ₹10,000. This equals a ₹20,000 favourable expenditure variance plus a ₹30,000 adverse volume variance.
- A₹10,000 AdverseCorrect
- B₹10,000 Favourable
- C₹20,000 Adverse
- D₹30,000 Adverse
Explanation
Standard rate = ₹3,00,000/10,000 = ₹30 per unit. Absorbed overhead = 9,000 × 30 = ₹2,70,000. Cost variance = absorbed − actual = 2,70,000 − 2,80,000 = ₹10,000 Adverse. ₹30,000 Adverse is only the volume variance, and it ignores the ₹20,000 favourable expenditure variance.
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