--- title: "Variance analysis, 9,300 vs 10,500 units" subject: "Engineering Economics" chapter: 1 key: "semester_6/engineering_economics:variance-production-9300-units" source: https://www.bctengineer.com/q/semester_6/engineering_economics/variance-production-9300-units site: BCT Engineering --- # Variance analysis, 9,300 vs 10,500 units Engineering Economics · Chapter 1: Introduction - Asked in: 2065 Kartik, 8 marks - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_6/engineering_economics/variance-production-9300-units - Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1 ## Question Calculate variance for the following: | | Standard | Actual | |---|---|---| | Production units | 9,300 | 10,500 | | Direct labour hours | 102,300 | 136,500 | | Fixed overhead (Rs.) | 21,483,000 | 28,392,000 | | Variable overhead (Rs.) | 15,345,000 | 17,199,000 | ## Short answer Fixed overhead total variance Rs 4,137,000 A (expenditure Rs 6,909,000 A, volume Rs 2,772,000 F). Variable overhead total variance Rs 126,000 F (expenditure Rs 3,276,000 F, efficiency Rs 3,150,000 A). ## Answer #### Standard rates - Standard hours per unit = 102,300 / 9,300 = 11 h - Fixed OH rate = 21,483,000 / 102,300 = Rs 210 per hour (budgeted FOH = Rs 21,483,000) - Variable OH rate = 15,345,000 / 102,300 = Rs 150 per hour - Actual output 10,500 units, so **standard hours for actual output SH = 10,500 × 11 = 115,500 h**; actual hours AH = 136,500 h (budgeted hours BH = 102,300) #### Fixed overhead variances Absorbed FOH = 115,500 × 210 = Rs 24,255,000; actual = Rs 28,392,000. | Variance | Calculation | Rs | |---|---|---| | Expenditure | 21,483,000 − 28,392,000 | 6,909,000 A | | Capacity | (AH − BH) × 210 = (136,500 − 102,300) × 210 | 7,182,000 F | | Efficiency | (SH − AH) × 210 = (115,500 − 136,500) × 210 | 4,410,000 A | | Volume | 7,182,000 F + 4,410,000 A (= 24,255,000 − 21,483,000) | 2,772,000 F | | **Total FOH** | 24,255,000 − 28,392,000 | **4,137,000 A** | #### Variable overhead variances Standard VOH for actual output = 115,500 × 150 = Rs 17,325,000; actual = Rs 17,199,000. | Variance | Calculation | Rs | |---|---|---| | Expenditure | AH × 150 − actual = 20,475,000 − 17,199,000 | 3,276,000 F | | Efficiency | (SH − AH) × 150 = (115,500 − 136,500) × 150 | 3,150,000 A | | **Total VOH** | 17,325,000 − 17,199,000 | **126,000 F** | **Answer: Fixed overhead total 4,137,000 A (expenditure 6,909,000 A, volume 2,772,000 F); variable overhead total 126,000 F (expenditure 3,276,000 F, efficiency 3,150,000 A).** Labour hours were much above standard (inefficiency), but this was nearly offset by lower variable spending per hour. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. How are SH, the standard hours for actual output, found? A. 10,500 units x 11 h per unit = 115,500 h B. Actual hours 136,500 C. Budgeted hours 102,300 D. 10,500 x 102,300 / 9,300 Answer: A. Standard hours per unit (11) are multiplied by actual output. (Key point: Standard hours for actual output) 2. How is the fixed overhead capacity variance obtained, and what is its sign? A. (SH - AH) x 210 = Rs 4,410,000 Adverse B. (AH - BH) x 210 = Rs 7,182,000 Favourable, since more hours were worked than budgeted C. Budgeted - actual FOH = Rs 6,909,000 Adverse D. (SH - BH) x 210 = Rs 2,772,000 Favourable Answer: B. Working 136,500 hours instead of 102,300 absorbs more fixed overhead, so it is favourable. (Key point: Fixed OH capacity variance) 3. How does the fixed OH volume variance arise? A. Expenditure + capacity = 273,000 F B. Capacity + efficiency both adverse = 11,592,000 A C. Capacity 7,182,000 F + efficiency 4,410,000 A = 2,772,000 F D. Absorbed FOH - actual FOH = 4,137,000 A Answer: C. Volume = absorbed 24,255,000 - budgeted 21,483,000 = 2,772,000 F. (Key point: Fixed OH volume variance) 4. Why is VOH efficiency adverse while VOH expenditure is favourable? A. Fewer hours were used than standard, but spending per hour was higher B. Output was below budget C. Fixed overhead exceeded its budget D. More hours (136,500) were used than standard (115,500), but spending per hour was below Rs 150 Answer: D. Efficiency (SH - AH) x 150 = 3,150,000 A; expenditure AH x 150 - actual = 3,276,000 F; net 126,000 F. 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