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

Sharma Components Ltd budgets fixed overheads of ₹6,00,000 for a month with budgeted output of 20,000 units. Actual fixed overheads incurred were ₹6,30,000 and actual output was 19,000 units. What is the fixed overhead expenditure (budget) variance?

The fixed overhead expenditure variance is ₹30,000 Adverse. It is the budgeted fixed overhead of ₹6,00,000 minus the actual fixed overhead of ₹6,30,000. Since actual spending exceeded the budget, the variance is adverse; output volume plays no part in this calculation.

  1. A₹30,000 AdverseCorrect
  2. B₹30,000 Favourable
  3. C₹60,000 Adverse
  4. D₹50,000 Adverse

Explanation

Expenditure variance = Budgeted fixed overhead − Actual fixed overhead = 6,00,000 − 6,30,000 = ₹30,000 Adverse. The ₹60,000 figure wrongly compares actual cost with absorbed overhead (19,000 × 30 = 5,70,000), which gives the total variance. Output levels do not affect the expenditure variance.

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