ACCA MA · Chapter 12
Standard costing and cost variances MCQs with Answers
10 multiple-choice questions on Standard costing and cost variances for ACCA MA Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which type of standard allows for normal levels of material waste, machine breakdowns and idle time?
- A) Ideal standard
- B) Attainable standard
- C) Basic standard
- D) Historical standard with no adjustments
Show answer & explanation
Answer: B) Attainable standard
An attainable standard can be achieved by efficient working, and it includes allowances for normal waste, breakdowns and idle time. An ideal standard assumes perfect conditions with no allowances. A basic standard is left unchanged over long periods to show trends.
Question 2
A company bought 8,000 kg of material for $35,200, and 7,600 kg were used in production. The standard price is $4.50 per kg, and raw material inventory is valued at standard cost. What is the material price variance?
- A) $800 adverse
- B) $760 favourable
- C) $760 adverse
- D) $800 favourable
Show answer & explanation
Answer: D) $800 favourable
When inventory is valued at standard cost, the price variance is calculated on the quantity purchased. Standard cost of purchases = 8,000 x 4.50 = $36,000. Actual cost = $35,200. Variance = 36,000 - 35,200 = $800 favourable, because the material cost less than standard ($4.40 per kg instead of $4.50).
Question 3
The standard material usage is 4 kg per unit, at a standard price of $4.50 per kg. 1,900 units were produced using 7,850 kg, which were bought at $4.40 per kg. What is the material usage variance?
- A) $1,125 favourable
- B) $1,125 adverse
- C) $1,100 adverse
- D) $1,100 favourable
Show answer & explanation
Answer: B) $1,125 adverse
Standard usage for actual output = 1,900 x 4 = 7,600 kg. Actual usage = 7,850 kg, which is 250 kg more than standard, so the variance is adverse. It is valued at the standard price: 250 x 4.50 = $1,125 adverse. Valuing at the actual price ($1,100) is wrong.
Question 4
Employees were paid $39,600 for 2,200 hours. Of these paid hours, 2,090 were worked and 110 were idle time. The standard labour rate is $17.50 per hour. What is the labour rate variance?
- A) $1,100 favourable
- B) $1,100 adverse
- C) $2,200 adverse
- D) $3,025 adverse
Show answer & explanation
Answer: B) $1,100 adverse
The rate variance is based on hours paid, including idle time. Standard cost of hours paid = 2,200 x 17.50 = $38,500. Actual cost = $39,600. Variance = 38,500 - 39,600 = $1,100 adverse, because the actual rate ($39,600 / 2,200 = $18.00) was more than standard. Using hours worked instead of hours paid (39,600 - 2,090 x 17.50 = $3,025) wrongly mixes the idle time into the rate variance.
Question 5
The standard labour time is 1.5 hours per unit, at $16 per hour. During a period 1,400 units were produced. Employees were paid for 2,300 hours, but 120 of these hours were idle time. What is the labour efficiency variance?
- A) $3,200 adverse
- B) $1,920 adverse
- C) $1,280 adverse
- D) $1,280 favourable
Show answer & explanation
Answer: C) $1,280 adverse
Standard hours for actual output = 1,400 x 1.5 = 2,100. Hours actually worked = 2,300 - 120 = 2,180. Efficiency variance = (2,100 - 2,180) x 16 = 80 x 16 = $1,280 adverse. Idle time is shown separately as an idle time variance (120 x 16 = $1,920 adverse). Using hours paid would wrongly give $3,200 adverse.
Question 6
Variable production overhead is absorbed at a standard rate of $4 per direct labour hour. In a period, 3,150 labour hours were worked, the standard hours for the actual output were 3,000, and actual variable overhead cost was $12,900. What is the variable overhead expenditure variance?
- A) $300 favourable
- B) $900 adverse
- C) $300 adverse
- D) $600 adverse
Show answer & explanation
Answer: C) $300 adverse
Expenditure variance = (actual hours worked x standard rate) - actual cost = (3,150 x 4) - 12,900 = 12,600 - 12,900 = $300 adverse. The efficiency variance is (3,000 - 3,150) x 4 = $600 adverse, and the total variance is $900 adverse.
Question 7
A company bought 5,200 kg of material for $23,400 and used 4,800 kg of it in production. Raw material inventory is valued at standard cost. The material price variance was $1,560 favourable. What is the standard price per kg?
- A) $4.20
- B) $4.50
- C) $5.20
- D) $4.80
Show answer & explanation
Answer: D) $4.80
Because inventory is valued at standard cost, the price variance is calculated on the 5,200 kg purchased. A favourable variance means standard cost was more than actual cost. Standard cost of purchases = 23,400 + 1,560 = $24,960. Standard price = 24,960 / 5,200 = $4.80 per kg. Dividing by the 4,800 kg used gives $5.20, subtracting the variance gives $4.20, and $4.50 is the actual price paid.
Question 8
In a period, 2,100 units were produced, and 6,480 hours were worked. The standard labour rate is $15 per hour, and the labour efficiency variance was $2,700 adverse. What is the standard labour time per unit?
- A) 3.17 hours
- B) 3.09 hours
- C) 3.00 hours
- D) 2.91 hours
Show answer & explanation
Answer: C) 3.00 hours
Excess hours = 2,700 / 15 = 180 hours adverse, so standard hours for actual output = 6,480 - 180 = 6,300. Standard time per unit = 6,300 / 2,100 = 3.00 hours. Adding the 180 hours instead of subtracting them gives 6,660 / 2,100 = 3.17 hours.
Question 9
A company reports a favourable material price variance and an adverse material usage variance. Which of the following is the most likely single explanation for both?
- A) Material prices rose because of inflation
- B) Production staff were more efficient than expected
- C) A more experienced buyer obtained a bulk discount on better-quality material
- D) Cheaper, lower-quality material was bought, which led to more waste in production
Show answer & explanation
Answer: D) Cheaper, lower-quality material was bought, which led to more waste in production
Lower-quality material usually costs less (a favourable price variance) but tends to cause more waste and rejects (an adverse usage variance). This interdependence shows why variances should be investigated together rather than in isolation.
Question 10
Each unit of a product uses 3 kg of material at $4 per kg and 2 direct labour hours at $12 per hour. Variable overheads are $3 per labour hour and fixed overheads are absorbed at $5 per labour hour. What is the standard full (absorption) production cost per unit?
- A) $42
- B) $47
- C) $52
- D) $49
Show answer & explanation
Answer: C) $52
Materials 3 x 4 = $12; labour 2 x 12 = $24; variable overhead 2 x 3 = $6; fixed overhead 2 x 5 = $10. Standard full cost = 12 + 24 + 6 + 10 = $52. The standard marginal cost would be $42, excluding fixed overhead. Both overhead rates are per labour hour, so they must be multiplied by 2 hours.