ACCA MA · Chapter 13
Overhead and sales variances and operating statements MCQs with Answers
10 multiple-choice questions on Overhead and sales variances and operating statements for ACCA MA Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Budgeted fixed production overheads were $120,000, and actual fixed production overheads were $126,500. What is the fixed overhead expenditure variance?
- A) $6,500 favourable
- B) $6,500 adverse
- C) $126,500 adverse
- D) $3,250 adverse
Show answer & explanation
Answer: B) $6,500 adverse
Fixed overhead expenditure variance = budgeted fixed overhead - actual fixed overhead = 120,000 - 126,500 = $6,500 adverse, because spending was higher than budget.
Question 2
Budgeted output was 10,000 units, with budgeted fixed overheads of $120,000 absorbed per unit. Actual output was 10,400 units. What is the fixed overhead volume variance?
- A) $4,800 adverse
- B) $4,800 favourable
- C) $400 favourable
- D) $12,000 favourable
Show answer & explanation
Answer: B) $4,800 favourable
OAR = 120,000 / 10,000 = $12 per unit. Volume variance = (actual output - budgeted output) x OAR = (10,400 - 10,000) x 12 = $4,800 favourable. Producing more than budget means more fixed overhead is absorbed, so the variance is favourable.
Question 3
Fixed overheads are absorbed at $8 per direct labour hour. Budgeted hours were 15,000, actual hours worked were 15,600, and the standard hours for actual output were 15,300. What is the fixed overhead capacity variance?
- A) $2,400 adverse
- B) $2,400 favourable
- C) $4,800 favourable
- D) $4,800 adverse
Show answer & explanation
Answer: C) $4,800 favourable
Capacity variance = (actual hours - budgeted hours) x OAR = (15,600 - 15,000) x 8 = $4,800 favourable, because more hours were worked than budgeted. The efficiency variance = (15,300 - 15,600) x 8 = $2,400 adverse. Together they make up the volume variance of $2,400 favourable.
Question 4
A company sold 4,800 units for total revenue of $129,600. The standard selling price is $28 per unit. What is the sales price variance?
- A) $4,800 favourable
- B) $5,000 adverse
- C) $4,800 adverse
- D) $1,600 adverse
Show answer & explanation
Answer: C) $4,800 adverse
Actual price = 129,600 / 4,800 = $27. Sales price variance = (actual price - standard price) x actual units = (27 - 28) x 4,800 = $4,800 adverse, because the selling price was lower than standard.
Question 5
Budgeted sales were 5,000 units and actual sales were 4,800 units. The standard selling price is $28, standard contribution is $10 per unit, and standard profit is $6 per unit. In a standard marginal costing system, what is the sales volume variance?
- A) $2,000 adverse
- B) $1,200 adverse
- C) $2,000 favourable
- D) $5,600 adverse
Show answer & explanation
Answer: A) $2,000 adverse
Under marginal costing, the sales volume variance is valued at standard contribution per unit: (4,800 - 5,000) x 10 = $2,000 adverse. Under absorption costing it would be valued at standard profit: 200 x 6 = $1,200 adverse.
Question 6
A standard absorption costing operating statement shows a budgeted profit of $48,000 and the following variances: sales volume $3,000 A; sales price $4,500 F; total material $2,200 A; total labour $1,800 F; total variable overhead $600 A; fixed overhead expenditure $1,500 A; fixed overhead volume $1,200 A. What is the actual profit?
- A) $42,200
- B) $47,000
- C) $51,800
- D) $45,800
Show answer & explanation
Answer: D) $45,800
Start from budgeted profit, add favourable variances and deduct adverse ones: 48,000 - 3,000 + 4,500 - 2,200 + 1,800 - 600 - 1,500 - 1,200 = $45,800. Total favourable = 6,300 and total adverse = 8,500, giving a net adverse movement of 2,200. Treating the labour variance as adverse would give $42,200.
Question 7
Which variance appears in a standard absorption costing operating statement but NOT in a standard marginal costing operating statement?
- A) Fixed overhead volume variance
- B) Fixed overhead expenditure variance
- C) Sales price variance
- D) Variable overhead efficiency variance
Show answer & explanation
Answer: A) Fixed overhead volume variance
Marginal costing does not absorb fixed overheads into units, so there is no volume variance; the only fixed overhead variance is expenditure (budget vs actual). Absorption costing includes the volume variance, because fixed overheads are absorbed on actual output.
Question 8
A company has a favourable sales price variance and an adverse sales volume variance. Which of the following is the most likely explanation?
- A) A competitor raised its prices, which increased demand for the company's product
- B) Selling prices were increased above standard, which reduced demand
- C) Discounts were offered to customers to win more orders
- D) The market grew faster than expected
Show answer & explanation
Answer: B) Selling prices were increased above standard, which reduced demand
A higher price than standard gives a favourable price variance, but it can reduce the number of units sold, which gives an adverse volume variance. Discounts would have the opposite effect (adverse price, favourable volume), and a competitor raising prices or market growth would tend to increase volume.
Question 9
The fixed overhead expenditure variance was $2,000 favourable, and actual fixed overheads were $58,000. Budgeted output was 12,000 units, with fixed overheads absorbed per unit. Actual output was 11,400 units. What is the fixed overhead volume variance?
- A) $3,000 adverse
- B) $2,900 adverse
- C) $3,000 favourable
- D) $1,000 adverse
Show answer & explanation
Answer: A) $3,000 adverse
A favourable expenditure variance means actual was less than budget, so budgeted fixed overheads = 58,000 + 2,000 = $60,000. OAR = 60,000 / 12,000 = $5 per unit. Volume variance = (11,400 - 12,000) x 5 = $3,000 adverse. Calculating the OAR from actual overheads (58,000 / 12,000) gives $2,900, which is wrong.
Question 10
Which of the following is the most likely cause of an adverse labour rate variance?
- A) Workers took less time than expected to complete production
- B) Using more highly skilled (higher-paid) workers than the standard specifies
- C) A national wage increase was smaller than expected when the standard was set
- D) Using lower-grade workers than the standard specifies
Show answer & explanation
Answer: B) Using more highly skilled (higher-paid) workers than the standard specifies
An adverse rate variance means the average hourly rate paid was higher than standard. Using a higher grade of labour than planned, unplanned pay rises or more overtime premium than expected could all cause this. Lower-grade workers or a smaller wage increase would give a favourable rate variance, and working faster affects efficiency, not rate.