Question 1: The following
information has been extracted from the books of Goru Enterprises which is
using standard costing system:
Actual output
|
= 9,000
units
|
Direct wages paid
|
=
1,10,000 hours at ` 22 per hour, of which 5,000
hours, being idle time, were not recorded in production
|
Standard hours
|
= 10
hours per unit
|
Labour efficiency variance
|
= `
3,75,000 (A)
|
Standard variable Overhead
|
= `
150 per unit
|
Actual Variable Overhead
|
= `
16,00,000
|
You are required to calculate:
(i) Idle time variance.
(ii) Total variable overhead variance.
(iii) Variable overhead expenditure variance.
(iv) Variable overhead efficiency variance. (ICAI)
Solution:-
Basic Workings
Actual
Output
|
9,000
units
|
Idle
Time
|
5,000
hrs
|
Production
Time(Actual)
|
1,05,000
hrs
|
Standard
Hours for Actual Production
|
90,000
hurs
|
(10
hours/unit X 9,000 units)
|
|
Labour
efficiency variance
=
3,75,000(A)
=
Std.Rate
|
=Standard
cost of Standard Time for Actual Production – Standard Cost of Actual Time
OR
=Std.
Rate X(Std. Hours –Actual Hours Worked)
=Std.
Rate X (90,000 hrs – 1,05,000 hrs)
= ` 25
|
Standard
Variable Overhead
|
= ` 150/umit
|
Standard
Hours
|
= 10
hrs/unit
|
Standard
Variable Overhead Rate/hr
|
=`150/ 10 hrs
|
|
=` 15/hr
|
Computation of Requirements
(i)
Idle Time variance
|
=
Standard Rate per Hour X actual idle Hours
=` 25 X 5,000Hrs.
=
1,25,000(A)
|
(ii) Total Variable Overhead Variance
|
Standard
Variable Overhead for Production- Actual Variable Overheads.
=`15X(10hrs X 9,000 units) -16,00,000
= ` 13,50,000 - ` 16,00,000
= ` 2,50,000(A)
|
(iii) Variable Overhead Expenditure Variance
|
=Budgeted
Overheads for Actual Hours worked –Actual variable Overheads
= `15 X 1,05,000 hrs - `16,00,000
= `15,75,000 - `16,00,000
= `25,000(A)
|
(iv) Variable Overhead Efficiency Variance
|
=Standard
Variable Overhead for output-Budgeted Overheads for Actual Hours
OR
=
Standard Rate per hour X (Standard Hours for actual Output-Actual Hours
Worked)
= ` 15 X (90,000 hrs – 1,05,000 hrs)
= ` 2,25,000(A)
|
Ø
Overheads can also be affected by
idle time. IT is usually assume that overheads expenditure is incurred in
active hours only.
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