- 2068 Jestha · 10 marks
Cost variance analysis from standard and actual
Short answer
Labour variance: Rs 72,000 F (rate Rs 30,000 F, efficiency Rs 42,000 F). Fixed overhead: Rs 10,000 A. Variable overhead: Rs 22,000 A. Labour well-controlled; overhead spending above standard.
Perform cost variance analysis.
| Standard (Rs) | Actual (Rs) | |
|---|---|---|
| Production (Units) | 9,000 | 8,000 |
| Direct Labour (Hours) | 72,000 | 60,000 |
| Direct Labour cost (Rs.) | 756,000 | 600,000 |
| Fixed overhead cost (Rs.) | 900,000 | 810,000 |
| Variable overhead cost (Rs.) | 684,000 | 630,000 |
Standard rates (from the standard column)
- Standard hours per unit = 72,000 / 9,000 = 8 h
- Standard labour rate = 756,000 / 72,000 = Rs 10.50 per hour
- Fixed overhead rate = 900,000 / 72,000 = Rs 12.50 per hour (budgeted fixed overhead Rs 900,000)
- Variable overhead rate = 684,000 / 72,000 = Rs 9.50 per hour
Actual output = 8,000 units, so standard hours for actual output (SH) = 8,000 × 8 = 64,000 h. Actual hours AH = 60,000 h.
1. Direct labour variances
| Variance | Calculation | Rs |
|---|---|---|
| Rate variance | (SR − AR) × AH = (10.50 − 10.00) × 60,000 | 30,000 F |
| Efficiency variance | (SH − AH) × SR = (64,000 − 60,000) × 10.50 | 42,000 F |
| Total labour cost variance | Std cost for actual output 672,000 − actual 600,000 | 72,000 F |
2. Fixed overhead variances
Absorbed FOH = 64,000 × 12.50 = 800,000; actual = 810,000.
| Variance | Calculation | Rs |
|---|---|---|
| Expenditure | Budgeted 900,000 − actual 810,000 | 90,000 F |
| Capacity (volume) | (AH − budgeted hours) × rate = (60,000 − 72,000) × 12.50 | 150,000 A |
| Efficiency | (SH − AH) × 12.50 = 4,000 × 12.50 | 50,000 F |
| Volume variance | 150,000 A + 50,000 F | 100,000 A |
| Total FOH variance | Absorbed 800,000 − actual 810,000 | 10,000 A |
3. Variable overhead variances
Std VOH for actual output = 64,000 × 9.50 = 608,000; actual = 630,000.
| Variance | Calculation | Rs |
|---|---|---|
| Expenditure | AH × SR − actual = 60,000×9.50 − 630,000 = 570,000 − 630,000 | 60,000 A |
| Efficiency | (SH − AH) × 9.50 = 4,000 × 9.50 | 38,000 F |
| Total VOH variance | 608,000 − 630,000 | 22,000 A |
(F = favourable, A = adverse.)
Answer: Labour 72,000 F (rate 30,000 F, efficiency 42,000 F); fixed overhead 10,000 A; variable overhead 22,000 A. Overall, labour is well controlled, but overhead spending is above the standard.
✓ Answer checked by Claude Opus 5.5 (high effort)
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