A manufacturing company operates a costing system and showed the following data in respect of the month of November.

A manufacturing company operates a costing system and showed the following data in respect of the month of November.

Actual No. of working days                                    22

Actual man hours worked during the month         4,300

Number of products produced                               425

Actual overhead incurred (Rs.)                          1,800

Relevant information from the company’s budget and standard cost data is as follows:

            Budgeted number of working days per month           20

            Budgeted man hours per month                          4,000

Standard man hours per product                              10

Standard overhead rate per man-hour                      50p

You are required to calculate the overhead variance and volume variance for the month of November.       

Solution.

	Budgeted	Actual
No of days	20	22
Man hours worked	4000	4300
Output in units	400	425
fixed overheads	2000	1800

Standard Rate per hour  : Budget fixed overheads / Budgeted hours

                                                : 2000 / 4000

                                                : 0.50 per man hour

Standard cost per unit                : Budgeted fixed overheads / Budgeted output

                                                : 2000 / 400

                                                : Rs 5 per unit

Recovered Fixed Overheads : Actual output x Standard cost per unit

                                                : 425 x 5

                                                : Rs 2125

Standard Fixed Overheads         : Actual hours x Standard rate per hour

                                                : 4300 x 0.50

                                                : Rs 2150

Fixed Overhead Variances

Fixed overhead cost variance                 : Recovered fixed overheads – Actual fixed overheads

                                                            : 2125 – 1800

                                                            : 325 (F)

Fixed overhead Expenditure Variance : Budgeted fixed overheads – Actual fixed OH

                                                              : 2000 – 1800

                                                              : 200 (F)

Fixed overhead volume variance  : Recovered Fixed overheads – Budgeted fixed overheads

                                                       : 2125 – 2000

                                                       : 125 (F)

Fixed overheads cost variance    : Expenditure variance + Volume variance

325 (F) = 200 (F) + 125 (F)

Volume variance can be further divided into

(i)                  Efficiency Variance

(ii)                Capacity Variance

(iii)               Calendar Variance

Efficiency Variance       : Recovered Fixed OH – Standard Fixed OH

                                    : 2125 – 2150

                                    : 25(A)

Capacity Variance         : Standard Fixed Overheads – Possible Fixed overheads

                                    : 2150 – 2200

                                    : 50 (A)

Calendar Variance        : Possible fixed overheads – Budgeted fixed OH

                                    : 2200 – 2000

                                    : 200 (F)

Note :

Possible fixed overheads : Actual no of days x Std Hours Per Day x Std Rate Per hour

                                         : 22 x (4000/20) x 0.50

                                         : Rs 2200

Reconciliation