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Fixed overhead cost variance from standard card

Short answer

Standard fixed overhead Rs 30/unit (2 hrs at Rs 15/hr). Absorbed 24,000 vs actual 32,400: total variance Rs 8,400 A. Expenditure variance Rs 2,400 A, capacity Rs 3,000 A, efficiency Rs 3,000 A.

In the standard card, it is observed that one unit of product 'X' requires fixed overhead of 2 hrs at the rate of Rs. 15/hr. During the month of February, 800 units are produced at the actual fixed overhead of Rs. 18/hr in 1800 hours. Budgeted fixed overhead is Rs. 30,000. Perform cost variance analysis.

Standard data

  • Standard: 2 hours per unit at Rs 15/h, so standard fixed overhead = Rs 30 per unit
  • Budgeted fixed overhead = Rs 30,000, so budgeted hours = 30,000 / 15 = 2,000 h (budgeted output 1,000 units)
  • Actual: 800 units, 1,800 hours, at Rs 18/h; actual fixed overhead = 1,800 × 18 = Rs 32,400

Standard hours for actual output = 800 × 2 = 1,600 h. Absorbed (recovered) overhead = 800 × 30 = Rs 24,000.

Variances

VarianceCalculationRs
Total FOH cost varianceAbsorbed 24,000 − actual 32,4008,400 A
Expenditure (budget) varianceBudgeted 30,000 − actual 32,4002,400 A
Volume varianceAbsorbed 24,000 − budgeted 30,0006,000 A
- Capacity variance(AH − budgeted hours) × 15 = (1,800 − 2,000) × 153,000 A
- Efficiency variance(SH for actual output − AH) × 15 = (1,600 − 1,800) × 153,000 A

Check: 2,400 A + 3,000 A + 3,000 A = 8,400 A.

(Equivalent view: rate variance = (15 − 18) × 1,800 = 5,400 A and efficiency variance 3,000 A, total 8,400 A.)

Answer: Total fixed overhead variance = Rs 8,400 adverse (expenditure 2,400 A, capacity 3,000 A, efficiency 3,000 A). Output and efficiency were below standard and overhead spending exceeded the budget.

✓ Answer checked by Claude Opus 5.5 (high effort)

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