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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

Rohini Plastics budgets fixed overheads of ₹2,00,000 for 10,000 units. Actual output is 8,000 units and actual fixed overheads are ₹2,10,000. If the firm uses marginal costing, what fixed overhead variance is reported?

Under marginal costing only a fixed overhead expenditure variance of ₹10,000 Adverse is reported. Fixed costs are treated as period costs and not absorbed into output, so there is no volume variance. The variance is simply actual ₹2,10,000 against budget ₹2,00,000.

  1. A₹10,000 Adverse expenditure variance onlyCorrect
  2. B₹50,000 Adverse cost variance
  3. C₹40,000 Adverse volume variance only
  4. D₹10,000 Favourable expenditure variance

Explanation

Under marginal costing, fixed overheads are a period cost and are not absorbed into units, so no volume variance arises. The only variance is actual against budget: 2,10,000 − 2,00,000 = ₹10,000 Adverse. The ₹50,000 A figure is the absorption-costing cost variance (8,000 × 20 = 1,60,000 absorbed against 2,10,000 actual), and ₹40,000 A is its volume part.

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