 Namaste. In last few sessions, we have been discussing on standard costing and variance analysis. So, I hope you remember the steps in standard costing, where we set the standard record actuals calculate variances and then analyze the variances. In the last session, we had discussed about material cost variances. And the same formulas, very similar formulas will be used for labor and variable overheads. We had discussed that fixed overhead variances however, are slightly different, which we are going to solve cases on in the today's session. So let us start with the case on Brummer limited. I hope you have got the printout, it is a very small case, very small problem, read it carefully and we will try to compute the fixed overhead variances. So it is mentioned that in the factory, 10,000 units are budgeted in a month, with budgeted fixed overheads being 15,000, which comes to 1.5 per unit. Now the actual output during the month was 11,000 that means it is slightly more, 10 was budgeted but 11 is produced and actual fixed overheads are however same, that is 15,000. So we will have to compute the fixed overhead variances. Now have a look at the formulas and let us think how to go about. Is there any overhead variances first of all? Because budgeted is also 15,000, actual is also 15,000. Is there a variance? The answer is yes because we follow a system wherein the overheads are absorbed on per unit basis. So if you see the budgeted calculation, it gives fixed overheads at 1.5 per unit. Since the number of units have gone up to 11,000, the overheads which will be absorbed that is overheads which are charged will also increase 11,000 at 1.5. So there are some variances, broadly speaking there are three variances under fixed overheads. One we are having is a fixed overhead cost variance that is a total variance. It gets subdivided into two parts, fixed overhead expenditure variance and fixed overhead volume variance. So let us try to look at this. I have given you the formulas here in the solution, please read it once again. So fixed overheads variance that is the total variance is based on the calculation of standard overheads versus actual overheads. Now the standard overheads are based on actual output. I hope you remember we had done it in the materials problem. So actual output into standard fixed overhead rate gives you the standard overhead for the period. When we compare it with the actual overhead, we get fixed overhead variance. This is the total variance. Then that is broken down into budgeted variance into expenditure variance which is a comparison of budgeted overhead with actual overhead and volume variance which is a comparison of actual with budget. Are you getting me? So broadly it is a difference between actual and standard, within that we have inserted one more aspect that is budget. Now when you compare actual and budget you get expenditure variance, when you compare standard and budget you get volume variance. Now let us start with the first the total variance. We had done it orally that since we have manufactured 11,000 units the actual output at 11,000 into 1.5, this becomes the absorbed overheads minus 15,000. So as we were discussing 11,000 into 1.5 minus 15,000, it gives a variance of 1500 favorable. If you observe carefully you will realize that the favorable portion of overhead is not because of expenditure. It is purely because of volume, because the budgeted output was 10,000, but the actual output has become 11,000. So we have produced 1000 extra units at 1.5 we are able to charge additional 1500 to those units, but the actual expenditure remains unchanged that is at 15,000. So as far as the total fixed overhead variance is concerned it is 1500 favorable. Now if you come to expenditure variance, it is a difference between budget minus actual. I hope you are able to solve it. So budget was 1500, 15,000 actual is also 15,000. So there is no variance. As far as the expenditure is concerned the budget and actual exactly match so there is no expenditure variance and now compute the volume variance. So standard fixed overhead rate it is a comparison of actual output and budgeted output. So 1.5 is a rate and we have produced 1000 units more. So you get 1500 favorable as a variance. Are you getting me? So this 1500 favorable plus 0 gives me 1500. Actually overhead variance is a total variance. It is broken down for two reasons. One is a expenditure related reason that is company has spent more or less than what was budgeted. Got it? The difference between budgeted overhead minus actual overhead. I will give you one more formula for volume variance to make it more clear. Basically volume variance is a comparison of standard overhead with budgeted overhead. Getting it? I will just write it down. Maybe you can also note it. I am just giving you alternative formula. Please note this alternative formula also. We are basically comparing standard overhead with actual overhead. In between the budget is also inserted. So if you compare budget with actual it is called expenditure variance. If you compare standard with budget it is called volume variance which is mainly because of units related reasons or output related reason and overall it is standard minus actual. I think it is reasonably clear with you. Now let us go to another case that is a case of Mahadev limited. This is little bit more in detail. So read it carefully. It is very small. They have given us number of working days. Both the budgets and actuals are available. It is 20 versus 22. Output per man hour as per budget is one unit as per actual it is 0.9. Number cost is 160, budgeted actual is 168. Man hours per day was budgeted 8000 actual or more 8400 compute overhead variances. Now look at it carefully. First of all what are the difference variances we are out to calculate. I will just go to last problem for clarity. We are going to calculate the total variance which is fixed overhead. It gets broken down into expenditure and volume. Further volume can be broken down into more reasons. Volume essentially means the actual output and budgeted output are different. Now what are the causes of this difference? In the last case that is Brahma limited no more information was available but here in case of Mahadev limited some more information is available. So volume variances can be broken down into 3 parts. If you observe this carefully you will realize that the first part is about number of working days. They have worked for more days than planned initially that is called as a calendar variance. You will see that there is a difference also in the number of hours worked per day that is known as capacity variance that means they have used more capacity. And there is also a difference between output per man hour as per plan and as per actual that is because of the efficiency. So overhead variance divided into expenditure and volume. Volume in turn is divided into calendar capacity and efficiency. Are you getting me? What leads to calendar variance is a difference in number of days. What leads to capacity variance is number of hours worked per day and what leads to efficiency variance is number of units produced within the hour which you have worked because that is a efficiency part. Now here since there are many factors we have made slightly a different type of table which might make it slightly easy for you. So just try to understand these terms first. See the overall budget is known as standard cost of sorry overall standard for the given output is known as standard cost of standard fixed overheads short form is SRSH. What SRSH stands for is standard rate so SR and SH is standard overheads. At the other end is actual fixed overheads. It is given as ARH, ARH means actual rate and actual overheads fine. In between three factors are inserted one is standard cost of actual overheads. So actual output is taken but standard rate is charged. So it is called as SRH then revised budget, budgeted fixed overheads. So SRRBH that means standard rate is used but revised budgeted hours are applied or on that it is applied and the third one is budgeted fixed overheads that is SRBH because budget is calculated at a standard rate. So SR, SR stands for standard rate but budgeted hours. Are you getting me? This BH stands for budgeted hours actual stands for actual hours because overhead calculation is essentially hour based. It is based on number of hours you work. So rate is on hours you will observe that first four columns are all on SR. That means standard rate per hour will be charged whereas the last column is AR. So actual rate will be charged getting it. Now instead of telling you more let us see what working nodes can be prepared because they will take us to the final solution. Now firstly SR is calculated. What is SR? SR is a standard rate. Now if you look at the given information we know the fixed overhead cost which is 160 and you know that the number of working days is 20, man hours per day is 8. So if you multiply 20 into 8 you get 160 and in one hour one unit is produced. So number of hours required is also 160. So 160 upon 160 that means rupee one per hour is a standard rate. You can just see the calculation once again. See standard rate is budgeted fixed overheads upon budgeted hours. You may wonder that why it is called standard? Keep in mind that standard rate and budgeted rate is same. In fact budget is prepared on the basis of standard rate. Do you remember while discussing budgets? We have seen that budgets are based on standard rates. That is why we do not know the rate. When they calculate budget they actually start with the rate. Here what is happening is we know the budgeted overheads which is 160 and budgeted hours have been calculated which are 160. If you are getting confused I will just show you once again try to multiply this 20 by 8000 20 into 8000 you will get 160 that is the budgeted man hours getting it. So 160 upon 160,000 upon 160,000. So one rupee per hour is a standard rate. Now next is RBH that is revised budgeted hours. Now this revision is not with respect to efficiency this revision is because of number of days. You will realize that this 160 I will just take you again here was based on 20 into 80,000. So in one day we work for 8000 hours such 20 days we work. Now since actually we have worked for 22 days there is a requirement to revise that budget. So revised budgeted hours is 22 upon 20 into 160. That means revised budgeted hours suppose everything else is unchanged just because instead of 20 days we have worked for 22 days we must have worked for 176,000 hours. But that is nothing but revised budgeted hours. Now next calculation is AH, AH stands for actual hours. Now it is given that we have worked for 22 days and every day not only it is more days every day also we have worked more that is 8400. So 22 into 8400 184 800 is the actual hours. Now in the actual hours how many units you have prepared? As per the norms the rate is 1 that means output per man hour. If you work for one hour you make one unit as per the budget. But as per actual it is only 0.9. That means by working for one hour our workers have only produced 0.9 units. That is why AQ, AQ is a actual quantity of output is 184 into 0.9 that means 166 320. And one more calculation is SH, SH stands for standard hours. Now as per the budget or as per the norms rate is 1 that means one hour is one unit. That is why based on the actual output that is 166 320 the standard hours for that much of production should have been 166 320. Are you getting? Actually we have worked much more 184 800. We kam karte ki time pass karte we do not know. But they have put in in terms of hours much more. But in terms of output it is only 166 320 units. So standard hours is 166 320. Getting it? Now we will try to calculate these 5 figures. See we are yet to even go for calculation of overheads. But it is very important to calculate these 5 figures carefully. Once you do that I think rest of the work is very simple you have to just divide find the difference and you will get the variance. So let us first start with actual because that is very easy to get. In fact here the actual cost is already given. So ARAH which is the actual is 168 we have directly written it as ARH got it? 168 is SRBH it is go better to go from right to left because easier to calculate. SRBH is also given that is this figure. We call it SRBH because standard rate for budgeted hours. Budgeted hours are 160 standard rate is 1. So SRBH that is budgeted fixed overheads is 160. Now SRRBH that is revised budgeted hours at standard rate. Now look at RBH that is revised budgeted hours are 176 standard rate is 1. So how much is SRRBH 1 into 176? So it is exactly 176000. So getting it I hope you are clear till now. Now go to SRAH. So taking actual hours but at standard rate. Now the actual hours are 184 standard rate is 1. So 1 into 184 so SRAH is 184 800. Now the last one is SRSH. So pick up the standard hours which is 166 320 our standard rate is 1. So SRSH is 166 320 are you getting it? Now once this 5 calculations are done you have not only done it you have also understood it. It is very simple to calculate the overheads. Now let us go for calculating each variance I am starting with the fifth one because that is the total variance. It is known as fixed overhead budget variance or sometimes it is called as fixed overhead expenditure variance. So it is a difference between this and this standard rate at standard hours and that is standard overheads compared with the actual overheads. So SRBH into ARH I will try to open everything so that it is more clear to you. Now next is comparison between the volume. So we have compared 160 and 168 first that gives us a difference of 8000 adverse that is known as fixed overhead expenditure variance. Now fixed overhead volume variance you know that volume is because of change in units. So we are comparing SRSH with SRBH got it SRSH and SRBH. See first one we compared this and this. So we have not considered volume side we are just looking at what was budgeted and what was what is incurred. That gives us this 8000 I started with this because it is easy to calculate. Then we went into number of units. So it is a comparison of SRSH with SRBH. So it is 166, 320 versus 160,000. Now you will see that we have produced more units. So we get a positive variance 6, 3, 2, 0 favorable. Now this 6, 3, 2, 0 is in turn divided into 3 parts. Now there are 3 reasons for it one is a calendar part. Calendar means because of more units because of more days what happened. So calendar variance is SRRBH with SRBH. So you can see it is a comparison with these 2. 176 was absorbed versus 160. So you get 16,000 favorable. One more reason is capacity. That means every hour how much more we have worked. We know that instead of 8000 per hour we have worked for 8400. That is a difference between these 2 figures. SRH that is standard hours for standard rate for actual hours with standard rate for revised budgeted hours. So difference is 8800 favorable. Got it SRH with SRRBH. And the last one is a efficiency part. That means within the hours we have worked how much units we have produced. So it is a difference between SRSH with SRH. You will see there is a lot of adverse in that 18, 180, 480. Now if you compare efficiency, if you add efficiency plus capacity plus calendar the total of these 2 will be your volume. Are you getting me? Because we were breaking down volume in for 3 reasons. Capacity related reasons, calendar related reasons and efficiency related reasons. All together we have put in a positive performance 6, 3, 2, 0 favorable. But on expenditure side it is a slightly negative performance because we have spent 8000 more. Now all together that is if you compare SRSH with ARHS or in other words standard with budget, then you will get the total fixed overhead variance, getting it total variance. That means 166, 320 with 16800. So you will get 1680 adverse. So this is a total of volume plus expenditure. I hope you have got it. We have gone a little fast but please try to solve more such cases and then it will become more clear to you. With this we are also completing our course of 10 hours. I hope you have found it very useful. We have started with discussion of what is meant by cost accounting, what is management accounting. Then we have seen that we have gone for calculation of what is known as CVP and BEP analysis or marginal costing which is extremely useful for decision making. After that we have discussed the budgetary control which is useful for decision making as well as control purposes and towards the end we have discussed standard costing which is a primary technique for cost control purposes. Overall cost and management accounting will be useful for both decision making as well as control. I hope you become very active in the discussion forum, put up your questions. Also try to solve other questions. Please try to get some standard textbook on cost accounting or you can also see the notes which we will share so that you can do more practice and there will be a conceptual clarity and that clarity you will also be able to use in your real life scenarios to cut down the cost as well as take more objective and fair decisions. This is going to be useful both for students. It will be also useful for self-employed people who might be doing their own enterprise or business. So, it will be a lifelong useful conceptual learning for you. With this I will stop here. Namaste. Danneval.