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CA Intermediate · Cost and Management Accounting · Standard Costing

Rohan Engineering uses standard costing. Standard variable overhead is Rs 8 per machine hour, and 3 machine hours are allowed per unit. For 2,000 units, actual machine hours were 6,300 and actual variable overhead was Rs 52,920. What is the variable overhead efficiency variance?

Variable overhead efficiency variance is Rs 2,400 Adverse. Standard hours for 2,000 units are 6,000, but 6,300 machine hours were used, so 300 extra hours at the standard rate of Rs 8 gives the adverse variance.

  1. ARs 2,400 AdverseCorrect
  2. BRs 2,520 Adverse
  3. CRs 4,920 Adverse
  4. DRs 2,400 Favourable

Explanation

Standard hours for actual output = 2,000 x 3 = 6,000. Actual hours are 6,300, an excess of 300. Efficiency variance = 300 x Rs 8 = Rs 2,400 Adverse. Rs 2,520 uses the actual rate of Rs 8.40 (52,920/6,300), which is the wrong rate; the expenditure variance is 6,300 x 8 = 50,400 versus 52,920, i.e. Rs 2,520 Adverse.

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