Below are exam-oriented, high-yield revision points for US CMA (Part 1) on Variable Overhead Variances, Fixed Overhead Variances, Spending & Volume Variances, Flexible Budget Variances, with causes and shortcuts. These are frequently tested and help eliminate options fast in MCQs.
🔹 VARIABLE OVERHEAD VARIANCES (VOH)
1️⃣ Variable Overhead Spending (Rate) Variance
Formula:
(Actual VOH Rate − Standard VOH Rate) × Actual Activity Base (AH / MH)
Meaning:
• Did we pay more or less per hour than expected?
Favorable when:
• Actual VOH rate < Standard rate
Causes (CMA favorite):
• Increase/decrease in indirect material prices
• Change in utility rates
• Use of cheaper or expensive supplies
• Poor supplier negotiation
• Inflation effects
📌 Key exam tip:
👉 Spending variance = price effect (NOT efficiency)
2️⃣ Variable Overhead Efficiency Variance
Formula:
(Actual Hours − Standard Hours) × Standard VOH Rate
Meaning:
• Were hours used efficiently?
Favorable when:
• Actual hours < Standard hours allowed
Causes:
• Labor efficiency or inefficiency
• Machine breakdowns
• Poor supervision
• Substandard materials
📌 CMA linkage rule:
👉 VOH efficiency variance is caused by same factors as Labor Efficiency Variance
3️⃣ Total Variable Overhead Variance
Formula:
Spending Variance ± Efficiency Variance
🔹 FLEXIBLE BUDGET VARIANCES (VERY IMPORTANT)
• Budget adjusted for actual output
• Eliminates volume difference
• CMA exam uses flexible budget heavily
Variable Cost Flexible Budget Variance
Formula:
Actual Variable Cost − Flexible Budget Variable Cost
📌 Shortcut:
Flexible budget variance = Spending + Efficiency (for variable OH)
🔹 FIXED OVERHEAD VARIANCES (FOH)
4️⃣ Fixed Overhead Spending (Budget) Variance
Formula:
Actual Fixed Overhead − Budgeted Fixed Overhead
Meaning:
• Did we spend more or less than planned?
Causes:
• Unexpected rent increase
• Higher salaries of supervisors
• Insurance premium changes
• Property tax revision
📌 Exam rule:
👉 NOT affected by production volume
5️⃣ Fixed Overhead Volume Variance ⭐ (VERY TESTED)
Formula:
Budgeted Fixed Overhead − Applied Fixed Overhead
or
(Standard Hours − Budgeted Hours) × FOH Rate
Meaning:
• Capacity utilization issue
• Over/Under absorption of fixed costs
Favorable when:
• Actual production > Budgeted production
Causes:
• Demand fluctuations
• Underutilization of plant capacity
• Poor production planning
• Seasonal demand
📌 Golden CMA rule:
👉 Volume variance exists ONLY because fixed cost rate is based on normal capacity
6️⃣ Fixed Overhead Applied
Formula:
Standard Hours × FOH Rate
🔹 RELATIONSHIP & SHORTCUTS (MCQ KILLERS)
✔ Variable OH Efficiency variance ↔ Labor efficiency variance
✔ Variable OH Spending variance ↔ Price/Rate changes
✔ Fixed OH Spending variance ↔ Cost control
✔ Fixed OH Volume variance ↔ Capacity utilization
📌 Important CMA Trick:
• No efficiency variance for fixed overhead
• Fixed cost per unit changes when volume changes
🔹 COMMON CMA TRAPS ⚠️
❌ Fixed overhead does NOT vary with activity
❌ Volume variance ≠ Spending variance
❌ Variable overhead efficiency variance ≠ cost control issue
✔ Flexible budget always uses actual output
🔹 ONE-LINE REMEMBER POINTS (EXAM GOLD)
• Variable OH rate variance = price effect
• Variable OH efficiency variance = usage effect
• Fixed OH spending variance = budget discipline
• Fixed OH volume variance = capacity utilization
• Favorable variance ≠ good performance always
• Under-absorption of FOH → unfavorable volume variance
🔹 WHEN CMA ASKS “MOST LIKELY CAUSE”
Variance Best Answer
VOH Efficiency Labor inefficiency
VOH Spending Utility rate increase
FOH Spending Rent / salary change
FOH Volume Lower production
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🔥 Solve MCQs , Submit your answers– Overhead Variances
MCQ 1: VOH Efficiency vs Labor Efficiency
A company applies variable overhead based on direct labor hours.
Labor efficiency variance is favorable. Variable overhead spending variance is unfavorable.
Which is most likely true?
A. Variable overhead efficiency variance is favorable
B. Variable overhead efficiency variance is unfavorable
C. Variable overhead efficiency variance is zero
D. Variable overhead efficiency variance cannot be determined
✅ Answer:
📌 Logic:
MCQ 2: Fixed Overhead Volume Trap
Budgeted production = 10,000 units
Actual production = 8,000 units
Fixed overhead spending variance = Zero
Which statement is correct?
A. Fixed overhead volume variance is favorable
B. Fixed overhead volume variance is unfavorable
C. Total fixed overhead variance is zero
D. No variance exists
✅ Answer:
📌 Logic:
MCQ 3: Flexible Budget Confusion
Actual variable overhead cost exceeds flexible budget variable overhead by ₹12,000.
Which variance is this?
A. Volume variance
B. Fixed overhead spending variance
C. Variable overhead flexible budget variance
D. Variable overhead volume variance
✅ Answer:
📌 Trap
MCQ 4: Rate vs Efficiency
Actual hours = 9,000
Standard hours allowed = 10,000
Standard VOH rate = ₹6 per hour
Variable overhead efficiency variance is:
A. ₹6,000 F
B. ₹6,000 U
C. ₹54,000 F
D. ₹54,000 U
✅ Answer:
📌
MCQ 5: Fixed Cost Misconception
Which variance reflects capacity utilization?
A. Fixed overhead spending variance
B. Variable overhead efficiency variance
C. Fixed overhead volume variance
D. Variable overhead spending variance
✅ Answer:
📌
MCQ 6: Zero Spending Variance Trick
Actual fixed overhead = Budgeted fixed overhead
Actual production ≠ Budgeted production
Which variance must exist?
A. Spending variance
B. Volume variance
C. Flexible budget variance
D. No variance
✅ Answer:
📌
MCQ 7: VOH Spending Cause
Which situation causes unfavorable variable overhead spending variance?
A. Higher labor hours
B. Poor labor efficiency
C. Increase in electricity rates
D. Lower production volume
✅ Answer:
📌
MCQ 8: FOH Rate Confusion
Fixed overhead rate is based on normal capacity. Actual output is less than normal capacity.
What happens?
A. Favorable spending variance
B. Unfavorable volume variance
C. Favorable volume variance
D. No variance
✅ Answer:
MCQ 9: Over-absorption Logic
Which condition leads to over-absorption of fixed overhead?
A. Actual hours < standard hours
B. Actual production < budgeted production
C. Actual production > budgeted production
D. Actual fixed cost > budgeted fixed cost
✅ Answer:
MCQ 10: CMA Elimination Killer
Which variance is NOT controllable by department managers in the short run?
A. Variable overhead spending variance
B. Variable overhead efficiency variance
C. Fixed overhead spending variance
D. Fixed overhead volume variance
✅ Answer:
📌 Reason:
🔑 FINAL EXAM STRATEGY (CMA GOLD)
✔ Variable OH → Rate & Efficiency
✔ Fixed OH → Spending & Volume
✔ Volume variance = capacity issue
✔ Flexible budget removes volume effect
✔ Fixed costs → no efficiency variance
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Below is a high-yield logical correlation map of ALL major variances tested in US CMA Part 1.
If you understand these cause–effect links, you can answer 70–80% variance MCQs without calculation.
🔗 LOGICAL CORRELATION BETWEEN VARIANCES (US CMA PART 1)
1️⃣ CORE PRINCIPLE (MOST IMPORTANT)
👉 One operational issue creates MULTIPLE related variances
CMA tests logic linkage, not isolated formulas.
2️⃣ EFFICIENCY CHAIN (THE GOLDEN TRIANGLE) ⭐⭐⭐
🔹 SAME ROOT CAUSE → SAME DIRECTION
Variance Correlates With
Material Efficiency Variance ↓
Labor Efficiency Variance ↓
Variable Overhead Efficiency Variance ↓
📌 Golden Rule (CMA Favorite):
If labor efficiency variance is unfavorable, variable OH efficiency variance is also unfavorable.
Common Causes:
• Poor supervision
• Machine breakdowns
• Substandard materials
• Inexperienced labor
❌ Trap:
Fixed overhead has NO efficiency variance
3️⃣ PRICE / RATE CHAIN (COST CONTROL LINK)
Variance Driven By
Material Price Variance Material purchase price
Labor Rate Variance Wage rate
Variable OH Spending Variance Utility, indirect material prices
Fixed OH Spending Variance Budgeted vs actual fixed cost
📌 Key Insight:
Spending ≠ Efficiency
4️⃣ MATERIAL MIX & YIELD → EFFICIENCY IMPACT
• Caused by change in input proportion
• Often intentional (cost saving)
• Caused by output loss or gain
🔹 LOGICAL CORRELATION:
Scenario Impact
Cheaper material mix Favorable mix but unfavorable yield
Poor yield Unfavorable material efficiency
Bad materials Unfavorable labor efficiency + VOH efficiency
📌 Exam Gold:
Yield variance affects ALL efficiency-related variances
5️⃣ LABOR EFFICIENCY → CASCADING EFFECTS
If Labor Efficiency Variance is Unfavorable, expect:
✔ Variable OH Efficiency Variance → Unfavorable
✔ Possibly Material Efficiency Variance → Unfavorable
✔ Higher variable cost per unit
📌 CMA logic:
Labor is the driver activity base
6️⃣ VARIABLE OVERHEAD: DOUBLE LINK
VOH Variance Correlates With
Spending (Rate) Indirect cost prices
Efficiency Labor efficiency
📌 Shortcut:
VOH Efficiency ≠ Cost Control
VOH Spending ≠ Usage
7️⃣ FIXED OVERHEAD VARIANCE LOGIC (VERY TESTED)
🔹 Fixed OH Spending Variance
• Budget discipline issue
• NOT linked to volume
🔹 Fixed OH Volume Variance ⭐
• Capacity utilization issue
• Linked to production level
Production Volume Variance
> Budgeted Favorable
< Budgeted Unfavorable
📌 CMA Trap:
Volume variance exists ONLY due to fixed cost allocation
8️⃣ FLEXIBLE BUDGET VARIANCES – THE BRIDGE
Flexible Budget Variance =
Actual Cost − Flexible Budget Cost
LOGIC:
Cost Type Variance Type
Variable cost Spending + Efficiency
Fixed cost Spending only
📌 Key Rule:
Flexible budget eliminates volume effect
9️⃣ SALES VARIANCE LOGIC (REVENUE SIDE)
🔹 SALES PRICE VARIANCE
• Market conditions
• Discounts
• Competition
• Demand & capacity
• Correlates with Fixed OH Volume Variance
📌 CMA Favorite Correlation:
Unfavorable sales volume variance → Unfavorable FOH volume variance
🔟 SALES QUANTITY vs MIX (MULTI-PRODUCT)
Variance Meaning
Sales Quantity Total units sold
Sales Mix Proportion of products
Sales Volume Combination of both
📌 Logic Trap:
Favorable sales mix ≠ Favorable profit
1️⃣1️⃣ BIG CORRELATION SUMMARY TABLE (EXAM CHEAT)
If This Happens… Expect This
Poor labor efficiency Unfavorable VOH efficiency
Cheap materials Favorable price, unfavorable efficiency
Low production Unfavorable FOH volume
High demand Favorable sales volume & FOH volume
Utility rate ↑ Unfavorable VOH spending
Better yield Favorable material efficiency
1️⃣2️⃣ CMA EXAM “MOST LIKELY” ANSWER LOGIC
Question Asks Best Variance
Capacity utilization FOH Volume
Cost control Spending variance
Operational efficiency Efficiency variance
Market conditions Sales price
Demand fluctuation Sales volume
🔥 ONE-LINE CMA MEMORY TRIGGERS
• Efficiency variances move together
• Spending variances are price-driven
• Volume variances are capacity-driven
• Flexible budget removes volume
• Fixed cost ≠ efficiency variance
• Revenue variances mirror production variances
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