Manag., December-2019 – Q93

93What is the overhead volume variance?
Kruger Corporation has recently implemented a standard cost system. The management has obtained the following information for variance analysis:
(a) Standard cost information:
Direct materials = Rs.5 per kg.
Quantity allowed per unit = 100 kg per unit
Direct labour rate = Rs.20 per hour
Hours allowed per unit = 2 hours per unit
Fixed overhead budget = Rs.12,000 per month
Normal level of production = 1,200 units
Fixed overhead application rate = Rs.10 per unit
Variable overhead applicable rate = Rs.2 per unit
Total overhead applicable rate = Rs.12 per unit
(b) Actual cost information:
Cost of material purchased and consumed = Rs.4,68,000
Quantity of material purchased and consumed = Rs.1,04,000 kg
Cost of direct labour = Rs.46,480
Hours of direct labour = 2240 hrs.
Cost of variable overhead = Rs.2,352
Cost of fixed overhead = Rs.12,850
Volume of production = 1000 units

Option : D
Explanation : Overhead Volume Variance
= (Actual output – Standard Output) × Standard Rate
= (1000 – 1200) × 10
= 2000 (Unfavourable)

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