CA Inter P4 · Chapter 12
Standard Costing MCQs with Answers
10 multiple-choice questions on Standard Costing for CA Inter P4 Cost and Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Standard material for one unit of product is 4 kg at ₹25 per kg. Actual output was 2,000 units, using 8,300 kg purchased and consumed at ₹24 per kg. The material price variance is:
- A) ₹8,300 (Favourable)
- B) ₹8,300 (Adverse)
- C) ₹8,000 (Favourable)
- D) ₹7,500 (Adverse)
Show answer & explanation
Answer: A) ₹8,300 (Favourable)
Material price variance = (standard price - actual price) x actual quantity = (₹25 - ₹24) x 8,300 = ₹8,300 Favourable, since the actual price is lower than standard.
Question 2
Using the same data (standard 4 kg at ₹25 per unit; actual output 2,000 units; actual usage 8,300 kg at ₹24), the material usage variance is:
- A) ₹7,500 (Favourable)
- B) ₹7,200 (Adverse)
- C) ₹8,300 (Favourable)
- D) ₹7,500 (Adverse)
Show answer & explanation
Answer: D) ₹7,500 (Adverse)
Standard quantity for actual output = 2,000 x 4 = 8,000 kg. Usage variance = (standard quantity - actual quantity) x standard price = (8,000 - 8,300) x ₹25 = -₹7,500, i.e. ₹7,500 Adverse. The standard price, not the actual price, is used.
Question 3
With the same data, the material cost variance is:
- A) ₹800 (Adverse)
- B) ₹15,800 (Adverse)
- C) ₹15,800 (Favourable)
- D) ₹800 (Favourable)
Show answer & explanation
Answer: D) ₹800 (Favourable)
Material cost variance = standard cost of actual output - actual cost = (8,000 kg x ₹25) - (8,300 kg x ₹24) = ₹2,00,000 - ₹1,99,200 = ₹800 Favourable. Check: price variance ₹8,300 F + usage variance ₹7,500 A = ₹800 F.
Question 4
Standard labour per unit is 3 hours at ₹60 per hour. Actual output was 1,800 units. Workers were paid for 5,700 hours at ₹62 per hour, including 120 hours of abnormal idle time. The labour rate variance is:
- A) ₹11,160 (Adverse)
- B) ₹11,400 (Adverse)
- C) ₹11,400 (Favourable)
- D) ₹10,800 (Adverse)
Show answer & explanation
Answer: B) ₹11,400 (Adverse)
Labour rate variance = (standard rate - actual rate) x actual hours paid = (₹60 - ₹62) x 5,700 = -₹11,400, i.e. ₹11,400 Adverse. The rate variance is computed on all hours paid, including idle hours.
Question 5
Using the same data (standard 3 hours at ₹60 per unit; output 1,800 units; 5,700 hours paid of which 120 hours were abnormal idle time), the labour efficiency variance is:
- A) ₹10,800 (Adverse)
- B) ₹18,000 (Adverse)
- C) ₹10,800 (Favourable)
- D) ₹11,160 (Adverse)
Show answer & explanation
Answer: A) ₹10,800 (Adverse)
Standard hours for actual output = 1,800 x 3 = 5,400. Hours actually worked = 5,700 - 120 = 5,580. Efficiency variance = (standard hours - actual hours worked) x standard rate = (5,400 - 5,580) x ₹60 = ₹10,800 Adverse. Idle time of 120 hours x ₹60 = ₹7,200 Adverse is shown separately as the idle time variance.
Question 6
The standard mix for a product is material X 60% at ₹20 per kg and material Y 40% at ₹35 per kg. In a period, actual input was 5,000 kg, consisting of 2,800 kg of X and 2,200 kg of Y. The material mix variance is:
- A) ₹3,000 (Adverse)
- B) ₹3,000 (Favourable)
- C) ₹4,000 (Favourable)
- D) ₹11,000 (Adverse)
Show answer & explanation
Answer: A) ₹3,000 (Adverse)
Standard mix of actual input: X = 60% x 5,000 = 3,000 kg; Y = 40% x 5,000 = 2,000 kg. Mix variance = (revised standard quantity - actual quantity) x standard price: X (3,000 - 2,800) x ₹20 = ₹4,000 F; Y (2,000 - 2,200) x ₹35 = ₹7,000 A. Net = ₹3,000 Adverse, because more of the dearer material Y was used.
Question 7
Budgeted fixed overheads are ₹4,80,000 for a budgeted output of 24,000 units. Actual output was 22,500 units. The fixed overhead volume variance is:
- A) ₹30,000 (Favourable)
- B) ₹32,000 (Adverse)
- C) ₹30,000 (Adverse)
- D) ₹1,500 (Adverse)
Show answer & explanation
Answer: C) ₹30,000 (Adverse)
Standard fixed overhead rate = ₹4,80,000 / 24,000 = ₹20 per unit. Volume variance = (actual output - budgeted output) x standard rate = (22,500 - 24,000) x ₹20 = -₹30,000, i.e. ₹30,000 Adverse, because output fell short of budget and fixed overheads were under-absorbed.
Question 8
Budgeted fixed overheads are ₹4,80,000 for a budgeted output of 24,000 units. Actual fixed overheads incurred were ₹4,95,000 and actual output was 22,500 units. The fixed overhead cost variance, and its split into expenditure and volume variances, is:
- A) ₹15,000 (A), being expenditure ₹15,000 (A) only
- B) ₹15,000 (A), being expenditure ₹15,000 (F) and volume ₹30,000 (A)
- C) ₹45,000 (F), being expenditure ₹15,000 (F) and volume ₹30,000 (F)
- D) ₹45,000 (A), being expenditure ₹15,000 (A) and volume ₹30,000 (A)
Show answer & explanation
Answer: D) ₹45,000 (A), being expenditure ₹15,000 (A) and volume ₹30,000 (A)
Standard rate = ₹4,80,000 / 24,000 = ₹20 per unit. Overheads absorbed = 22,500 x ₹20 = ₹4,50,000. Cost variance = absorbed - actual = ₹4,50,000 - ₹4,95,000 = -₹45,000, i.e. ₹45,000 Adverse. Expenditure variance = budgeted - actual = ₹4,80,000 - ₹4,95,000 = ₹15,000 Adverse. Volume variance = absorbed - budgeted = ₹4,50,000 - ₹4,80,000 = ₹30,000 Adverse. Check: 15,000 + 30,000 = 45,000.
Question 9
A standard that assumes perfect operating conditions, with no allowance for wastage, machine breakdowns or idle time, is called a(n):
- A) Normal standard
- B) Ideal standard
- C) Basic standard
- D) Expected (attainable) standard
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Answer: B) Ideal standard
An ideal standard can be achieved only under the most favourable conditions, with no allowance for normal losses or inefficiencies. It may demotivate staff because it is rarely achieved. A normal or expected standard includes allowances for normal losses, while a basic standard is kept unchanged over long periods to show trends.
Question 10
An adverse material price variance is normally the responsibility of the:
- A) Production foreman
- B) Sales manager
- C) Personnel manager
- D) Purchase manager
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Answer: D) Purchase manager
The price variance arises from paying more or less than the standard price for materials, which is controlled mainly by the purchase department. The usage variance is usually the responsibility of production. However, price variances may also arise from factors outside the purchase manager's control, such as general inflation or urgent orders demanded by production.