Page 191 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes The next step is to find out the standard hours for actual output

= Standard Hours × Actual Output = 6 hours per unit × 100 Units
= 600 Hours
= ` 4 (600 Hours – 640 Hours)
= ` 160 (Adverse)

Solved Problems for Practice

1. Budgeted hours for month of Mar. 2004, 180 units
Standard rate of article produced per hour 50 units
Budgeted fi xed overheads ` 2,700

Actual production March 2004; 9,200 units
Actual hours for production 175 hours
Actual fi xed overheads ` 2,800
Calculate overhead cost variance, overhead budget variance, overhead volume variance,

overhead efficiency variance and overhead capacity variance.
Solution:
The first one to determine the overhead cost variance

= Standard Overhead Cost – Actual Overhead Cost

The standard overhead cost is to be found out
Standard overhead cost for actual production has to be computed from the below given
formula

= Standard Rate per Unit × Actual Production in Units
First step is to determine the standard rate per unit
Budgeted Fixed Overheads
=
Budgeted Hours × Standard Rate of Article Produced per hour
` 2,700
= = .3 paise
180 × 50
The next one is to find out the overhead cost

= 9,200 units ×.30 paise = ` 2,760
Overhead Cost Variance = ` 2,760 – ` 2,800 = ` 40 (Adverse)
Overhead Budget Variance = Budgeted Overhead – Actual Overhead
= ` 2,700 – ` 2,800 = ` 100 (Adverse)
Overhead Volume Variance = Standard Overhead – Budgeted Overhead

= ` 2,760 – ` 2,700 = ` 60 (Favourable)

The overhead efficiency variance could be calculated in two different ways.
The efficiency is expressed in terms of hours and units. If the firm is able to produce the

goods or articles in lesser hours of duration, known as more efficient in time management
than the standard.

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