Page 193 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes = (1,66,320 units – 184,800 units) × 1

= ` 18,480 (Adverse)
Overhead Capacity Variance

The overhead capacity variance mainly depends upon the differences prevailing in between the
number of days of actual and budgeted.
If there is any difference in between the number of days of actual and budgeted, the calendar
variance will arise.

Calendar variance = (Revised budgeted production – Budgeted production) × Standard rate
Capacity variance = (Standard production – Revised budgeted production) × Standard rate
If there is no difference between the actual and standard calendar variance will not arise; but the
capacity variance will prevail.
Capacity variance = (Standard production – Budgeted production) × Standard rate
According to this problem, calendar variance is prevailing.
Capacity variance = (Standard production – Revised budgeted production) × Standard
rate
What is revised budgeted production?
Revised budgeted production is nothing but the budgeted production tuned to the actual
production.
For 1 day = 1 × 8000 mandays = 8,000 units
For 20 working days = 8,000 units × 20 days = 1,60,000 units
Revised budgeted production changes the budgeted production in terms of actual production.

For 20 days = 1,60,000 units
1,60,000
For 22 actual days = × 22 days = 1,76,000 units
20 days
Capacity variance = (1,84,800 units – 1,76,000 units) × 1 = ` 8,800(Favourable)
Calendar variance = (Revised budgeted production – Budgeted production) ×
Standard rate
= (1,76,000 units – 1,60,000 units) × 1 = ` 16,000 (Favourable)

Verifi cation
Volume variance = Efficiency variance + Capacity variance + Calendar variance

` 6,320 = ` 18,480 (Adverse) + 8,800 (Favourable) + ` 16,000 (Favourable)

9.2.4 Sales Variances

Sales variance is the only component accompanied the profit volume variance of the business
transaction. The sales variances are computed and analysed in order to study the effect of sales
value and facilitates the sales manager to easily understand the various sales efforts taken by the
team.

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