Premier Industries has a small factory where 52 workers are employed on an average for 25 days a month and they work 8 hours per day. The normal…

CA Intermediate · Cost and Management Accounting · MTP · September 2025
Premier Industries has a small factory where 52 workers are employed on an average for 25 days a month and they work 8 hours per day. The normal down time is 15%. The firm has introduced standard costing for cost control. Its monthly budget for March, 2025 shows that the budgeted variable and fixed overhead are - 1,06,080 and - 2,21,000 respectively. The firm reports the following details of actual performance for March, 2025, after the end of the month: Actual hours worked 8,100 hrs. Actual production expressed in standard hours 8,800 hrs. Actual Variable Overheads 1,02,000 Actual Fixed Overheads 2,00,000 You are required to CALCULATE: (i) Variable Overhead Variances: (a) Variable overhead expenditure variance. (b) Variable overhead efficiency variance. (ii) Fixed Overhead Variances: (a) Fixed overhead capacity variance. (b) Fixed overhead efficiency variance.

Suggested Answer and Working Notes:

(a) Workings: Calculation of budgeted hours Budgeted hours = (52 x 25 x 8) x 85% = 8,840 hours (i) Variable overheads variance (a) Variable overhead expenditure variance = Std. overhead for Actual hours - Actual variable Overhead = 1,06,080 x 8,100 -1,02,000 8,840 = 4800 A (b) Variable overhead efficiency variance Std. rate per hour × (Std. hours for actual production – Actual hours) = 1,06,080 (8,800 hours – 8,100 hours) 8,840 = 8400 F (ii) Fixed overhead variances (a) Fixed overhead capacity variance = Std rate x (Actual hours – budgeted hours) = 2,21,000 x (8,100 – 8,840) 8,840 = 18,500 A (b) Fixed overhead efficiency variance = Std rate x (Std hours for actual production – Actual hours) = 2,21,000 x (8,800 – 8,100) 8,840 = 17,500 F

Topics: Standard Costing

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