CA Intermediate · Cost and Management Accounting · Standard Costing
Standard Costing: Kaveri Foods budgeted fixed overhead of Rs 6,00,000 for 20,000 units (standard 2 hours per unit). Actual output was 18,500 units, actual hours worked were 38,000 and actual fixed overhead was Rs 6,20,000. What is the fixed overhead volume variance?
The fixed overhead volume variance is Rs 45,000 adverse. Overhead absorbed on actual output is 18,500 units at Rs 30, which is Rs 5,55,000, against budgeted overhead of Rs 6,00,000. Under-absorption through lower production gives the adverse volume variance.
- ARs 45,000 AdverseCorrect
- BRs 30,000 Adverse
- CRs 20,000 Adverse
- DRs 15,000 Adverse
Explanation
Standard rate = 6,00,000/20,000 = Rs 30 per unit (Rs 15 per hour). Absorbed overhead = 18,500 x 30 = Rs 5,55,000. Volume variance = 5,55,000 - 6,00,000 = Rs 45,000 Adverse. Option C is the expenditure variance (6,20,000 - 6,00,000), which is a different variance.
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