CA Intermediate · Cost and Management Accounting · Standard Costing
Standard cost per unit of a product: material Rs 120, labour Rs 60. Fixed overhead is budgeted at Rs 3,00,000 for 10,000 units. Actual output was 9,000 units and actual fixed overhead incurred was Rs 3,10,000. What is the fixed overhead volume variance?
The fixed overhead volume variance is Rs 30,000 Adverse. The standard rate is Rs 30 per unit, so 9,000 units absorb Rs 2,70,000 against a budget of Rs 3,00,000. Under-absorption caused by lower output produces the adverse volume variance.
- ARs 30,000 AdverseCorrect
- BRs 40,000 Adverse
- CRs 10,000 Adverse
- DRs 30,000 Favourable
Explanation
Standard fixed overhead rate = 3,00,000/10,000 = Rs 30 per unit. Absorbed = 9,000 x 30 = Rs 2,70,000. Volume variance = absorbed - budgeted = 2,70,000 - 3,00,000 = Rs 30,000 Adverse. Rs 40,000 Adverse is the total fixed overhead variance, and Rs 10,000 Adverse is the expenditure variance.
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