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CMA Final · Strategic Cost Management · Variance Analyses

Meera Foods budgets fixed overhead of Rs 3,00,000 for 30,000 hours (Rs 10 per hour); standard is 2 hours per unit. Actual output was 14,000 units, actual hours worked 29,000, and actual fixed overhead Rs 3,10,000. What is the fixed overhead capacity variance?

The fixed overhead capacity variance is Rs 10,000 Adverse. Actual hours worked were 29,000 against budgeted 30,000, a shortfall of 1,000 hours, valued at the standard fixed overhead rate of Rs 10 per hour.

  1. ARs 10,000 AdverseCorrect
  2. BRs 10,000 Favourable
  3. CRs 20,000 Adverse
  4. DRs 30,000 Favourable

Explanation

Capacity variance = (actual hours - budgeted hours) x standard rate = (29,000 - 30,000) x 10 = Rs 10,000 Adverse. Efficiency variance would be (29,000 - 28,000) x 10 = Rs 10,000 Adverse; volume variance = (28,000 - 30,000) x 10 = Rs 20,000 Adverse, the distractor.

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