Question 3
Fixed overhead variances including efficiency, capacity and calendar
18 marks
- Time to write
- About 36 minutes
Question
Question 3 · 18 marksFor April, 2015, Ganga Ltd. gives the following information:
| Budget | Actual | |
|---|---|---|
| Man Hours | 40,000 | 42,400 |
| Output per man hour (Units) | 4.0 | 3.8 |
| Overheads (Rs) | 64,000 | 62,000 |
| Number of working days | 25 | 26 |
Compute:
Cost Variance of Fixed Overhead
Expenditure Variance of Fixed Overhead
Volume Variance of Fixed Overhead
Efficiency Variance of Fixed Overhead
Capacity Variance of Fixed Overhead
Calendar Variance of Fixed Overhead
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- ComputeFormula first, then the working, then the answer with its unit (₹, %, units).
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Working: outputs, rates, standard and revised hours 5 marks 9 min
- 2 Cost, expenditure and volume variances 6 marks 11 min
- 3 Efficiency, capacity and calendar variances 5 marks 9 min
- 4 Reconciliation 2 marks 3 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 36 minutes for 18 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
| Item | Calculation | Figure |
|---|---|---|
| Budgeted output | 40,000 hours × 4.0 units | 1,60,000 units |
| Actual output | 42,400 hours × 3.8 units | 1,61,120 units |
| Standard fixed overhead rate per unit | ₹64,000 ÷ 1,60,000 units | ₹0.40 |
| Standard fixed overhead rate per hour | ₹64,000 ÷ 40,000 hours | ₹1.60 |
| Standard hours for actual output | 1,61,120 units ÷ 4.0 | 40,280 hours |
| Revised budgeted hours (for 26 days) | 40,000 ÷ 25 days × 26 days | 41,600 hours |
| Absorbed overhead | 1,61,120 units × ₹0.40 (= 40,280 hours × ₹1.60) | ₹64,448 |
Variances (F = favourable, A = adverse)
- Fixed Overhead Cost Variance (FOCV) = Absorbed overhead − Actual overhead = ₹64,448 − ₹62,000 = ₹2,448 (F).
- Fixed Overhead Expenditure Variance = Budgeted overhead − Actual overhead = ₹64,000 − ₹62,000 = ₹2,000 (F).
- Fixed Overhead Volume Variance = Absorbed overhead − Budgeted overhead = ₹64,448 − ₹64,000 = ₹448 (F).
- Fixed Overhead Efficiency Variance = Standard rate per hour × (Standard hours for actual output − Actual hours) = ₹1.60 × (40,280 − 42,400) = ₹3,392 (A).
- Fixed Overhead Capacity Variance = Standard rate per hour × (Actual hours − Revised budgeted hours) = ₹1.60 × (42,400 − 41,600) = ₹1,280 (F).
- Fixed Overhead Calendar Variance = Standard rate per hour × (Revised budgeted hours − Budgeted hours) = ₹1.60 × (41,600 − 40,000) = ₹2,560 (F) (equivalently, one extra working day × ₹64,000 ÷ 25 = ₹2,560).
- Efficiency ₹3,392 (A) + Capacity ₹1,280 (F) + Calendar ₹2,560 (F) = Volume ₹448 (F).
- Expenditure ₹2,000 (F) + Volume ₹448 (F) = Cost variance ₹2,448 (F).
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Working: outputs, rates, standard and revised hours | 5 |
| 2 | Cost, expenditure and volume variances | 6 |
| 3 | Efficiency, capacity and calendar variances | 5 |
| 4 | Reconciliation | 2 |
| Total | 18 |
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