A manufacturing company has set the standard cost for producing one unit of its product as follows: Direct Material: 10 kg @5/kgDirect Labour: 4…

CA Intermediate · Cost and Management Accounting · RTP · January 2026
A manufacturing company has set the standard cost for producing one unit of its product as follows: Direct Material: 10 kg @5/kgDirect Labour: 4 hours @20/hourVariable Overhead: 4 hours @5/hourFixed Overhead:10 per unit (based on normal output of 5,000 units) During a particular month, the company produced 4,800 units. The actual results were: Direct Labour: 19,200 hours costing - 3,84,000Variable Overhead Incurred:95,000Fixed Overhead Incurred:52,000 Based on this information, which of the following statements is most accurate?
(A) The material usage variance is 5,000 (Favourable)
(B) The labour rate variance is 19,200 (Adverse)
(C) The labour rate variance is 19,200 (Favourable)
(D) The fixed overhead volume variance is 2,000 (Adverse)

Suggested Answer and Working Notes:

Correct Answer: Option (D)

The fixed overhead volume variance is 2,000 (Adverse)

Topics: Marginal Costing, Standard Costing

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