I have issue with sound level in GK1. Sometimes speech seems to fade into background and I can barely hear what the characters are saying, other times the speech is loud and clear. Especially bad it is in the Voodoo Museum, where music is loud. I couldn't have figured out what the woman was saying when I turned on the fan, without subtitles. First I thought it was bad balance between music and dialogue voice levels, so I turned off music, but I noticed that even if music is turned off the voice level drops to barely audible. Any ideas what can cause this?

Have you changed the soundblaster setting from sb1 to sb16? You can do this by going into the game folder and open up the dosbox.conf file with notepad then find the sound blaster settings and change it to sb16 and save the file.
If that doesn't work what OS and sound card do you have?

I tried replacing the sound device with SB16 and I even tried removing Sound Blaster and replaced it with Gravis Ultrasound settings which I copied for my regular DOSBox config file. But still the speech is buggy. Volume of the speech drops sometimes and occasionally last syllable is cut off. I'm bit confused because I have plenty of other old Sierra titles (I have CD versions of Space Quest and King's Quest collections which both use DOSBox as default and there is no problem). I have no problem with GK2 sounds either (which is the GOG version). So I don't know why I can't get GK1 speech work without issues, no matter which settings I have tried. Luckily there are subtitles. Regular sound effects and musics work fine.
I have Realtek HD Audio and XP, but I don't know how much those affect because normally I can get DOSBox support Ultrasound, Sound Blaster or Adlib without any issue.

Try soundDrv = GENMIDI.DRV and audioDrv = DACTHUND.DRV in the RESOURCE.CFG and for the dosboxGK1.conf use only:
[sdl]
output= overlay
fullscreen= true
[cpu]
core= normal
cycles= 10000
[autoexec]
cls
@ECHO OFF
mount C "."
c:
cd \
SIERRA.EXE .\resource.cfg
exit

Hey, I was the lead prog and we didn't get that one on any of our test machines, so its hard to say. The other replies seem to be on the right track though. Probably a new driver that sees our system code differently than the ones we were able to test with. Can you try it on a different machine? If it works, it would be easier to narrow it down.
Oh yeah, the voices were all .wav files. It was awhile ago but the originals of the older games didn't use .wav, unless they made new ones for the floppy to CD version, that's why you don't get the prob on the other games. As you have probably already figured out, that narrows it down to audio. All the music was midi and the sound effects varied depending on the situation.

It seems that I mixed up two separate issues, I've been playing more and after more careful listening I now realize better what the issues are.
A) Everytime I restore game music goes to max (although it doesn't show it in the menu). Music level returns to normal if I touch to menu setting or move to another room. It explains why I thought that speech sometimes disappears under the music.
B) There are few parts of the game where speech is actually buggy, but luckily those happen only rarely. Fan in the Voodoo Museum is probably best example. In those parts speech is really out of sync and comes much later than it should be and often more than half of the sentence is cut off. If I turn speed to minimum in those parts it plays the sound with less issues, but it still comes rather late compared to subtitles and action on the screen. Dropping cycles didn't seem to have any effect to it.