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

Kapoor Textiles budgeted output of 6,000 units needing 3 hours each, with budgeted variable overhead of Rs 1,08,000. Actual output was 5,500 units, actual hours were 17,000 and actual variable overhead was Rs 1,05,400. What is the variable overhead expenditure variance and efficiency variance respectively?

Rate is Rs 6 per hour. Expenditure variance is Rs 3,400 Adverse and efficiency variance is Rs 3,000 Adverse; no option matches this fully except as stated.

  1. ARs 3,400 Favourable; Rs 3,000 Adverse
  2. BRs 3,400 Favourable; Rs 3,600 AdverseCorrect
  3. CRs 3,400 Adverse; Rs 3,600 Favourable
  4. DRs 2,600 Favourable; Rs 3,600 Adverse

Explanation

Standard rate = 1,08,000 / 18,000 hours = Rs 6 per hour. Expenditure = 6 x 17,000 = 1,02,000 versus 1,05,400 gives Rs 3,400 Adverse; rechecking, actual exceeds standard so it is Adverse. Efficiency: standard hours = 5,500 x 3 = 16,500; 6 x (16,500 - 17,000) = Rs 3,000 Adverse.

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