CMA Final · Strategic Cost Management · Variance Analyses
Mehta Components budgets fixed overheads of Rs 2,40,000 for 6,000 units (absorption rate Rs 40 per unit). Actual output was 5,500 units and actual fixed overheads were Rs 2,52,000. What is the fixed overhead expenditure variance?
The fixed overhead expenditure variance is Rs 12,000 Adverse, because actual fixed overheads of Rs 2,52,000 exceeded the budgeted Rs 2,40,000. Output shortfall affects only the volume variance, which is separate from the expenditure variance.
- ARs 12,000 AdverseCorrect
- BRs 12,000 Favourable
- CRs 20,000 Adverse
- DRs 32,000 Adverse
Explanation
Expenditure variance = budgeted fixed overhead - actual fixed overhead = 2,40,000 - 2,52,000 = Rs 12,000 Adverse. Rs 20,000 Adverse is the volume variance (500 units x Rs 40). Rs 32,000 Adverse is the total fixed overhead variance (absorbed 2,20,000 vs actual 2,52,000), not the expenditure variance.
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