Skip to content

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

Mehta Industries uses a standard variable overhead rate of Rs 20 per labour hour. For actual production, 2,500 standard hours were allowed, but 2,700 hours were actually worked. Actual variable overhead was Rs 56,000. What is the variable overhead efficiency variance?

The efficiency variance is Rs 4,000 Adverse. Actual hours exceeded the standard hours allowed for the output by 200 hours, and valuing this excess at the standard rate of Rs 20 per hour gives Rs 4,000, which is unfavourable because more time was used than allowed.

  1. ARs 4,000 Favourable
  2. BRs 4,000 AdverseCorrect
  3. CRs 2,000 Adverse
  4. DRs 6,000 Adverse

Explanation

Efficiency variance = standard rate x (standard hours for actual output - actual hours) = 20 x (2,500 - 2,700) = Rs 4,000 Adverse. Rs 6,000 would wrongly combine the expenditure variance (54,000 - 56,000 = 2,000 Adverse) with efficiency.

Did you get it right without looking?

One question tells you little. A timed set on Standard Costing and Variance Analysis (Management Accounting) shows your real accuracy, how long you take and where you lose marks.

Practise Standard Costing and Variance Analysis (Management Accounting)Free diagnostic mock

More Standard Costing and Variance Analysis (Management Accounting) questions