ACCA PM · Chapter 12
Standard costing and variance analysis MCQs with Answers
12 multiple-choice questions on Standard costing and variance analysis for ACCA PM Performance Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which type of standard assumes perfect operating conditions, with no allowance for wastage, idle time or machine breakdowns?
- A) Ideal standard
- B) Attainable standard
- C) Current standard
- D) Basic standard
Show answer & explanation
Answer: A) Ideal standard
An ideal standard can only be achieved under perfect conditions and makes no allowance for normal losses or inefficiencies. Attainable standards allow for normal losses, current standards reflect present conditions, and basic standards are left unchanged over long periods for trend analysis.
Question 2
A company bought and used 4,200 kg of material at a total cost of $23,100. The standard price is $5.20 per kg and the standard usage is 4 kg per unit. Actual output was 1,000 units. What are the material price and usage variances?
- A) Price $1,260 favourable; usage $1,040 adverse
- B) Price $1,260 adverse; usage $1,040 favourable
- C) Price $1,260 adverse; usage $1,040 adverse
- D) Price $1,260 adverse; usage $1,100 adverse
Show answer & explanation
Answer: C) Price $1,260 adverse; usage $1,040 adverse
Price variance = $23,100 - (4,200 x $5.20) = $23,100 - $21,840 = $1,260 adverse. Standard quantity for 1,000 units = 4,000 kg. Usage variance = (4,000 - 4,200) x $5.20 = $1,040 adverse. Both are adverse because more was paid per kg and more kg were used than standard.
Question 3
Product W is made by mixing two materials. The standard input to produce 9 kg of W is 6 kg of D at $4 per kg and 4 kg of E at $7 per kg. Last month, 2,900 kg of D and 2,100 kg of E were used, and 4,410 kg of W were produced. What is the total materials mix variance?
- A) $300 favourable
- B) $400 favourable
- C) $300 adverse
- D) $520 adverse
Show answer & explanation
Answer: C) $300 adverse
Total actual input = 5,000 kg. In standard mix: D 3,000 kg and E 2,000 kg. D: (3,000 - 2,900) x $4 = $400 favourable. E: (2,000 - 2,100) x $7 = $700 adverse. Total mix variance = $300 adverse, because proportionately more of the expensive material E was used.
Question 4
Product W is made by mixing two materials. The standard input to produce 9 kg of W is 6 kg of D at $4 per kg and 4 kg of E at $7 per kg. Last month, 2,900 kg of D and 2,100 kg of E were used, and 4,410 kg of W were produced. What is the total materials yield variance?
- A) $520 favourable
- B) $520 adverse
- C) $578 adverse
- D) $700 adverse
Show answer & explanation
Answer: B) $520 adverse
Standard cost per kg of input = ((6 x $4) + (4 x $7)) / 10 = $5.20. Standard input for 4,410 kg of output = 4,410 / 9 x 10 = 4,900 kg. Actual input = 5,000 kg. Yield variance = (4,900 - 5,000) x $5.20 = $520 adverse.
Question 5
A production manager changes the mix of ingredients in a process to use a higher proportion of a cheaper material. Which combination of variances is most likely to result?
- A) An adverse mix variance and a favourable yield variance
- B) A favourable mix variance and an adverse yield variance
- C) A favourable mix variance and a favourable yield variance
- D) An adverse price variance and a favourable yield variance
Show answer & explanation
Answer: B) A favourable mix variance and an adverse yield variance
Using more of the cheaper material reduces the standard cost of the actual input, giving a favourable mix variance. However, the cheaper mix may produce less output per kg of input or lower quality, leading to an adverse yield variance. The variances are interdependent and should be assessed together.
Question 6
Mu Co sells products G and H. Budgeted sales were 3,000 units of G and 2,000 units of H. Standard contribution is $10 per unit for G and $20 per unit for H. Actual sales were 3,600 units of G and 1,900 units of H. What is the total sales mix contribution variance?
- A) $3,000 adverse
- B) $3,000 favourable
- C) $7,000 favourable
- D) $6,000 adverse
Show answer & explanation
Answer: A) $3,000 adverse
Actual total sales = 5,500 units. In budgeted mix (60:40): G 3,300 and H 2,200. G: (3,600 - 3,300) x $10 = $3,000 favourable. H: (1,900 - 2,200) x $20 = $6,000 adverse. Mix variance = $3,000 adverse, because the mix shifted towards G, which earns less contribution per unit.
Question 7
Mu Co sells products G and H. Budgeted sales were 3,000 units of G and 2,000 units of H. Standard contribution is $10 per unit for G and $20 per unit for H. Actual sales were 3,600 units of G and 1,900 units of H. What is the total sales quantity contribution variance?
- A) $7,000 adverse
- B) $4,000 favourable
- C) $7,000 favourable
- D) $7,500 favourable
Show answer & explanation
Answer: C) $7,000 favourable
Weighted average standard contribution per unit = ((3,000 x $10) + (2,000 x $20)) / 5,000 = $14. Quantity variance = (5,500 - 5,000) x $14 = $7,000 favourable. Check: mix $3,000 A + quantity $7,000 F = total sales volume variance $4,000 F.
Question 8
The standard price of a material was set at $8 per kg. During the period, a worldwide shortage meant the market price rose, and management agreed that a realistic standard would have been $9 per kg. The company bought 6,000 kg at $9.40 per kg. What are the material price planning and operational variances?
- A) Planning $2,400 adverse; operational $6,000 adverse
- B) Planning $6,000 favourable; operational $2,400 adverse
- C) Planning $8,400 adverse; operational $0
- D) Planning $6,000 adverse; operational $2,400 adverse
Show answer & explanation
Answer: D) Planning $6,000 adverse; operational $2,400 adverse
Planning variance = (original standard - revised standard) x actual quantity = ($8 - $9) x 6,000 = $6,000 adverse; this is outside the purchasing manager's control. Operational variance = (revised standard - actual price) x actual quantity = ($9 - $9.40) x 6,000 = $2,400 adverse. Together they equal the total price variance of $8,400 adverse.
Question 9
The standard labour time is 2 hours per unit at $12 per hour. Following new safety regulations that were not foreseen when the standard was set, a realistic standard would have been 2.5 hours per unit. Output was 1,800 units and 4,300 hours were worked. What is the labour efficiency operational variance?
- A) $2,400 favourable
- B) $10,800 adverse
- C) $8,400 adverse
- D) $2,400 adverse
Show answer & explanation
Answer: A) $2,400 favourable
Revised standard hours for actual output = 1,800 x 2.5 = 4,500 hours. Operational efficiency variance = (4,500 - 4,300) x $12 = $2,400 favourable. The planning variance is (3,600 - 4,500) x $12 = $10,800 adverse, giving a total efficiency variance of $8,400 adverse.
Question 10
Which of the following is a recognised problem with separating variances into planning and operational elements?
- A) Managers may try to claim that adverse variances are due to planning errors outside their control
- B) It always makes operational variances appear worse than the total variance
- C) It removes the need to set standards at the start of the period
- D) It can only be applied to sales variances and not to cost variances
Show answer & explanation
Answer: A) Managers may try to claim that adverse variances are due to planning errors outside their control
Revised standards are set with hindsight and involve judgement, so managers have an incentive to argue that poor results are planning (uncontrollable) issues. Establishing a realistic revised standard can also be time-consuming. Planning and operational analysis can be applied to sales, material, labour and overhead variances.
Question 11
A purchasing manager buys a cheaper, lower-quality grade of material than standard. Which combination of variances is most likely to arise?
- A) An adverse material price variance and a favourable material usage variance
- B) A favourable material price variance and a favourable labour efficiency variance
- C) An adverse material price variance and an adverse labour rate variance
- D) A favourable material price variance and an adverse material usage variance
Show answer & explanation
Answer: D) A favourable material price variance and an adverse material usage variance
Paying less per kg gives a favourable price variance, but lower-quality material is likely to cause more wastage and rejects, giving an adverse usage variance. It may also slow production, causing an adverse labour efficiency variance. This illustrates the interdependence of variances.
Question 12
A company's standard selling price for product T is $50 per unit. During the period it sold 1,900 units at an average price of $48 per unit. What is the sales price variance?
- A) $3,800 adverse
- B) $3,800 favourable
- C) $4,000 adverse
- D) $2,000 adverse
Show answer & explanation
Answer: A) $3,800 adverse
Sales price variance = (actual price - standard price) x actual units sold = ($48 - $50) x 1,900 = $3,800 adverse. It is adverse because each unit was sold for less than the standard price, and it is based on actual, not budgeted, quantity.