---
title: "Fixed overhead cost variance from standard card"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:fixed-overhead-variance-standard-card"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/fixed-overhead-variance-standard-card
site: BCT Engineering
---

# Fixed overhead cost variance from standard card

Engineering Economics · Chapter 1: Introduction

- Asked in: 2066 Magh, 6 marks
- Video: [Cost Variance | Theory + Numerical | Economics | 2019.2018.2017.2016.2011 PU/TU/KU/PoU](https://www.youtube.com/watch?v=W9bWYDQGCqQ) — Sudip Dhakal
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/fixed-overhead-variance-standard-card
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

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.

## 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.

## Answer

#### 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
| Variance | Calculation | Rs |
|---|---|---|
| **Total FOH cost variance** | Absorbed 24,000 − actual 32,400 | **8,400 A** |
| Expenditure (budget) variance | Budgeted 30,000 − actual 32,400 | 2,400 A |
| Volume variance | Absorbed 24,000 − budgeted 30,000 | 6,000 A |
| - Capacity variance | (AH − budgeted hours) × 15 = (1,800 − 2,000) × 15 | 3,000 A |
| - Efficiency variance | (SH for actual output − AH) × 15 = (1,600 − 1,800) × 15 | 3,000 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.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Absorbed overhead for 800 units is:
   A. 1,600 x 18
   B. 1,800 x 18 = 32,400
   C. 800 x 30 = Rs 24,000
   D. 30,000
   Answer: C. Std overhead is 2 h x Rs 15 = Rs 30 per unit. (Key point: Absorbed FOH)

2. Expenditure variance is:
   A. 24,000 - 32,400 = 8,400 A
   B. 24,000 - 30,000 = 6,000 A
   C. 3,000 A
   D. 30,000 - 32,400 = Rs 2,400 A
   Answer: D. Budgeted minus actual. (Key point: Expenditure)

3. Capacity variance:
   A. (1,800 - 2,000) x 15 = Rs 3,000 A
   B. (1,600 - 1,800) x 15 = 3,000 A
   C. (1,800 - 1,600) x 15 = 3,000 F
   D. 2,400 A
   Answer: A. Actual hours less than budgeted 2,000. (Key point: Capacity)

4. Total fixed overhead variance:
   A. 6,000 A
   B. 24,000 - 32,400 = Rs 8,400 A
   C. 5,400 A
   D. 2,400 A
   Answer: B. Equals 2,400 + 3,000 + 3,000. (Key point: Total)

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