Cost and Management AccountingQuestion 5427 of 251
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11. AB limited has furnished the following data: Budget Actual (for the month of March) Production in units 40,000 48,000 Fixed overheads (`) 78,000 84,000 Calculate fixed overhead volume variance.

Options

A` 15,600 F
B` 15,600 A
C` 6,000 A
D` 14,000 A COST AND MANAGEMENT ACCOUNTING
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Correct Answer

✅ Option A — ` 15,600 F

All Options:

  • A` 15,600 F ✓
  • B` 15,600 A
  • C` 6,000 A
  • D` 14,000 A COST AND MANAGEMENT ACCOUNTING

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Detailed Solution & Explanation

The fixed overhead volume variance measures the difference between budgeted and actual production at the standard fixed overhead rate:
Standard Rate of Fixed Overhead=Budgeted Fixed OverheadsBudgeted Production=₹78,00040,000 units=₹1.95 per unit\text{Standard Rate of Fixed Overhead} = \frac{\text{Budgeted Fixed Overheads}}{\text{Budgeted Production}} = \frac{\text{₹} 78,000}{40,000 \text{ units}} = \text{₹} 1.95 \text{ per unit}
Fixed Overhead Volume Variance=(Actual Production−Budgeted Production)×Standard Rate\text{Fixed Overhead Volume Variance} = (\text{Actual Production} - \text{Budgeted Production}) \times \text{Standard Rate}
Fixed Overhead Volume Variance=(48,000−40,000)×1.95=8,000×1.95=₹15,600 (Favourable)\text{Fixed Overhead Volume Variance} = (48,000 - 40,000) \times 1.95 = 8,000 \times 1.95 = \text{₹} 15,600 \text{ (Favourable)}
Hence, **Option A** is the correct answer.

Key Concepts to Understand

Variance

A measure of dispersion equal to the average of the squared deviations of each data point from the mean. Formula: σ² = Σ(xᵢ − x̄)² / n. Standard Deviation = √Variance.

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