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Overhead Variance: CP 202 (A) - Unit V

The document discusses variable and fixed overhead variances. It provides examples to calculate different types of variances including variable overhead cost, expenditure and efficiency variances as well as fixed overhead cost, expenditure, volume, efficiency and capacity variances. Formulas and workings are shown to calculate each variance.

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Kumardeep Singha
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211 views

Overhead Variance: CP 202 (A) - Unit V

The document discusses variable and fixed overhead variances. It provides examples to calculate different types of variances including variable overhead cost, expenditure and efficiency variances as well as fixed overhead cost, expenditure, volume, efficiency and capacity variances. Formulas and workings are shown to calculate each variance.

Uploaded by

Kumardeep Singha
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CP 202 (A) - Unit V (17-04-20)

Overhead Variance
(Under Guidance of Prof. Amrit Lal Ghosh)

Submitted By
Kumardeep Singha
MBA 2nd Semester
Roll No. 22
Variable Overhead Variance
Problem 1:
From the following particulars, compute the Variable Overhead Variance:
Standard Actual
Output in Units 2500 units 2000 units
Labour Hours 5000 6000
Variable Overheads ₹ 1,000 ₹ 1,500

Solution to Problem No.1:


Workings:
Standard Variable Overhead Rate per hour = Budgeted Variable Overhead ÷
Budgeted Hours
= ₹1000 ÷ 5000
= ₹ 0.20 per hour

Standard Variable Overhead Rate per unit of output = Budgeted Variable Overhead ÷
Budgeted Output
= ₹ 1,000 ÷ 2500
= ₹ 0.40 per hour

Calculation of Variance:
1. Variable Overhead Cost Variance = Actual Variable Overheads – Standard Variable
Overhead for Actual Production
= ₹ 1500 – (2000 X ₹ 0.40)
= ₹ (1500 – 800)
= ₹ 700 (Adverse/Unfavourable)

2. Variable Overhead Expenditure Variance = Actual Variable Overheads – Standard


Variable Overhead for Actual Hours worked
= ₹ 1500 – (6000 X ₹ 0.20)
= ₹ (1500 – 1200)
= ₹ 300 (Adverse/unfavourable)

3. Variable Overhead Efficiency Variance =


Standard Variable Overhead for Actual Hours – Standard Variable Overhead
For Actual Production
= (6000 X ₹ 0.20) – (2000 X ₹ 0.40)
= ₹ (1200 – 800)
= ₹ 400 (Adverse/Unfavourable)
Hints:
Standard Variable Overhead for Actual Hours = Actual Hours X Standard Variable
Overhead Rate per hour

Standard Variable Overhead for Actual Output = Actual Output X Standard Variable
Overhead Rate per unit of Output
Verification:
Variable Overhead Cost Variance = Variable Overhead Expenditure Variance +
Variable Overhead Efficiency Variance
₹ 700 (Adverse) = ₹ 300 (Adverse) + ₹ 400 (Adverse)
₹ 700 (Adverse) = ₹ 700 (Adverse), Verified

Fixed Overhead Variance


Problem 2:
From the following particulars Calculate Fixed Overhead Variances:
Standard Actual
Output in Units 5000 5200
Labour Hours 20000 20100
Fixed Overhead ₹ 10000 ₹ 10200

Standard time for one unit = 4 hours

Solution to Problem No.2:


Workings
(a) Standard Hours for Actual Output:
For 1 unit standard time 4 hours
For 5200 units, Standard Time = 5200 X 4 = 20800 hours

(b) Standard Overhead Rate per Hour:


For 1 unit Standard Time 4 hours
For 5000 units, Standard Time = 5000 X 4 = 20000 hours

For 20000 hours Fixed overhead is ₹ 10000


For 1 hour, Fixed Overhead = ₹10000 ÷ 20000 = ₹ 0.50 per hour

(c) Standard Overhead Rate per Unit:


For 5000 Units Fixed Overhead is ₹ 10000
For 1 unit, Fixed Overhead = ₹10000 ÷ 5000 = ₹ 2.00 per unit

Calculation of Variances:
1. Fixed Overhead Cost Variance:
= (Standard Hours for Actual Output X Standard Overhead Rate per hour) – Actual
Overhead
= (20,800 X ₹ 0.50) – ₹10,200
= ₹ (10,400 –10,200)
= ₹ 200 (Favourable)

2. Fixed Overhead Expenditure of Budget Variance:


= Budgeted Fixed Overhead – Actual Fixed Overhead
= ₹ (10,000 – 10,200)
= ₹ 200 (Adverse/Unfavourable)

3. Fixed Overhead Volume Variance:


= (Actual Production– Budgeted Production) X Standard Overhead Rate per Unit
= (5200 – 5000) X ₹ 2
= ₹ 400 (Favourable)

4. Fixed Overhead Efficiency Variance:


= (Standard Hours for Actual Production – Actual Hours) X Standard Overhead Rate
Per hour
= (20,800 – 20,100) X ₹ 0.50
= ₹ 350 (Favourable)

It is favourable because actual hours are less than standard hours.

5. Fixed Overhead Capacity Variance:


= (Budgeted Hours – Actual Hours) X Standard Overhead Rate per hour
= (20000 – 20100) X ₹ 0.50
= ₹ 50 (Favourable)

Since actual hours are more than budgeted hours, in terms of capacity utilization, it
indicates Favourable Variance.
Verification:
1) Fixed Overhead Cost Variance = F.O. Expenditure variance + F.O. Volume
Variance
₹ 200 (Favourable) = ₹ 200 (Adverse) + ₹ 400 (Favourable)
₹ 200 (Favourable) =₹ 200 (Favourable), Verified

2) Fixed Overhead Volume Variance = F.O. Efficiency Variance + F.O. Capacity


Variance
₹ 400 (Favourable) = ₹ 350 (Favourable) + ₹ 50 (Favourable)
₹ 400 (Favourable) = ₹ 400 (Favourable), Verified

Extra’s

variance favourable adverse


fixed overheadexpenditure savings in costs incurred increase in cost of services used
changes in prices relating to excessive use of services
fixed change in type of services used
overhead expenditure
fixed overhead volume labour force working more labour force working less
efficiency efficiently efficiently lost production through
strike
fixed overhead volume labour force working overtime machine breakdown, strikes,
capacity labourshortage

1. Fixed overhead Capacity Variance:


i. When actual hours are less than budgeted hours, in terms of capacity utilization, it
indicates Adverse Variance
ii. When actual hours are more than budgeted hours, in terms of capacity utilization, it
indicates Favourable Variance.

2. Fixed Overhead Efficiency Variance:


i. Favourable = when actual hours are less than standard hours.
ii. Adverse = When Actual Hours are more than Standard Hours

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