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CMA Intermediate · Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Iyer Metals Ltd has a standard fixed overhead rate of ₹40 per unit, based on budgeted output of 5,000 units. Actual output was 5,400 units and actual fixed overheads were ₹2,10,000. What is the fixed overhead total (cost) variance?

The fixed overhead total variance is ₹6,000 Favourable. Overhead absorbed on actual output is 5,400 units × ₹40 = ₹2,16,000, which exceeds the actual fixed overhead of ₹2,10,000, so the overhead is over-absorbed and the variance is favourable.

  1. A₹6,000 FavourableCorrect
  2. B₹10,000 Adverse
  3. C₹16,000 Favourable
  4. D₹6,000 Adverse

Explanation

Absorbed overhead = 5,400 × 40 = ₹2,16,000. Total variance = absorbed − actual = 2,16,000 − 2,10,000 = ₹6,000 Favourable (over-absorption). The ₹16,000 option wrongly uses budgeted output of 5,000 units (2,00,000) and the wrong comparison.

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