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CA Intermediate · Cost and Management Accounting · Standard Costing

Mehta Components Ltd budgeted fixed overhead of Rs 6,00,000 for 30,000 units in a month. Actual production was 27,000 units and actual fixed overhead was Rs 5,85,000. What are the fixed overhead expenditure variance and the fixed overhead volume variance respectively?

Expenditure variance is Rs 15,000 Favourable because actual spending of Rs 5,85,000 is below the budget of Rs 6,00,000. Volume variance is Rs 60,000 Adverse because output was 3,000 units short of budget at a standard rate of Rs 20 per unit.

  1. ARs 15,000 Favourable and Rs 60,000 AdverseCorrect
  2. BRs 15,000 Adverse and Rs 60,000 Favourable
  3. CRs 45,000 Favourable and Rs 60,000 Adverse
  4. DRs 15,000 Favourable and Rs 45,000 Adverse

Explanation

Standard rate = 6,00,000/30,000 = Rs 20 per unit. Expenditure variance = budgeted 6,00,000 - actual 5,85,000 = Rs 15,000 Favourable. Volume variance = (actual output 27,000 - budgeted 30,000) x 20 = Rs 60,000 Adverse. Total variance = absorbed 5,40,000 - 5,85,000 = Rs 45,000 Adverse, which checks: 60,000 A - 15,000 F.

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