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

Sharma Components Ltd. budgeted 4,000 machine hours at a variable overhead rate of Rs 15 per hour. Actual machine hours worked were 4,300 and actual variable overhead incurred was Rs 67,800. Standard hours allowed for actual output were 4,200. What is the variable overhead expenditure variance?

The variable overhead expenditure variance is Rs 3,300 Adverse. Overhead absorbed on actual hours is 4,300 x Rs 15 = Rs 64,500, while actual spending was Rs 67,800, so the firm spent Rs 3,300 more than the standard allows for the hours worked.

  1. ARs 3,300 AdverseCorrect
  2. BRs 3,300 Favourable
  3. CRs 4,800 Adverse
  4. DRs 2,700 Adverse

Explanation

Expenditure variance = standard rate x actual hours - actual overhead = 15 x 4,300 = 64,500 less 67,800 = Rs 3,300 Adverse. Option Rs 4,800 mixes in standard hours (4,200 x 15 = 63,000), which is the wrong base for expenditure variance.

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