CAF-5 · Chapter 11
Variance Analysis MCQs with Answers
10 multiple-choice questions on Variance Analysis for CAF-5 Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What does the "total direct material cost variance" essentially represent in standard costing?
- A) The difference between the budgeted material cost for the period and the actual material cost incurred.
- B) The difference between the actual quantity of material used and the standard quantity of material allowed.
- C) The difference between the actual material cost incurred and the standard material cost of the actual production.
- D) The difference between the standard price of materials and the actual price paid to suppliers.
Show answer & explanation
Answer: C) The difference between the actual material cost incurred and the standard material cost of the actual production.
Total direct material variance is defined in the study text as the difference between the actual material cost in producing units in the period and the standard material cost of producing those actual units.
Question 2
A company's standard material price is Rs. 8.00 per kg. During the month, it purchased and consumed 50,000 kgs of material at an actual price of Rs. 7.80 per kg. What is the direct material price variance?
- A) Rs. 10,000 Favourable
- B) Rs. 10,000 Adverse
- C) Rs. 400,000 Favourable
- D) Rs. 390,000 Adverse
Show answer & explanation
Answer: A) Rs. 10,000 Favourable
Material Price Variance = (Standard Price – Actual Price) × Actual Quantity. Calculation: (Rs. 8.00 – Rs. 7.80) × 50,000 kgs = Rs. 0.20 × 50,000 = Rs. 10,000. Because the actual price paid was less than the standard price, the variance is Favourable.
Question 3
Product X has a standard labour requirement of 4 hours per unit at a standard rate of Rs. 50 per hour. During the period, 1,000 units were produced using 4,050 actual hours. What is the direct labour efficiency variance?
- A) Rs. 2,500 Favourable
- B) Rs. 2,000 Adverse
- C) Rs. 2,500 Adverse
- D) Rs. 50,000 Favourable
Show answer & explanation
Answer: C) Rs. 2,500 Adverse
Labour Efficiency Variance = (Standard Hours allowed for actual production – Actual Hours worked) × Standard Rate. Standard hours for 1,000 units = 1,000 × 4 = 4,000 hours. Calculation: (4,000 hours – 4,050 hours) × Rs. 50 = (50 hours) × 50 = Rs. 2,500. Because actual hours exceeded standard hours, the variance is Adverse.
Question 4
Under an absorption costing system, how is the "fixed production overhead volume variance" calculated?
- A) (Actual fixed overheads incurred – Budgeted fixed overheads)
- B) (Actual production volume in units – Budgeted production volume in units) × Standard fixed overhead absorption rate per unit
- C) (Actual hours worked – Budgeted hours) × Standard fixed overhead absorption rate per hour
- D) Budgeted fixed overheads – Applied fixed overheads
Show answer & explanation
Answer: B) (Actual production volume in units – Budgeted production volume in units) × Standard fixed overhead absorption rate per unit
The fixed overhead volume variance measures the difference between the actual units produced and the budgeted units, evaluated at the standard fixed overhead absorption rate per unit.
Question 5
The fixed production overhead volume variance can be further sub-divided into which of the following two variances?
- A) Expenditure variance and Efficiency variance
- B) Capacity variance and Expenditure variance
- C) Mix variance and Yield variance
- D) Capacity variance and Efficiency variance
Show answer & explanation
Answer: D) Capacity variance and Efficiency variance
The study text explicitly states that the fixed production overhead volume variance can be further analyzed and sub-divided into two variances: capacity variance and efficiency variance.
Question 6
When preparing an operating statement to reconcile budgeted profit with actual profit under a standard marginal costing system, how must the sales volume variance be valued?
- A) At standard profit per unit
- B) At actual profit per unit
- C) At standard contribution margin per unit
- D) At actual selling price per unit
Show answer & explanation
Answer: C) At standard contribution margin per unit
Under a standard marginal costing system, fixed costs are treated as a period expense and are not absorbed into unit costs. Therefore, the sales volume variance is calculated using the standard contribution margin per unit, rather than the standard profit per unit used in absorption costing.
Question 7
When a manufacturing process requires a blend of two or more raw materials, the overall material usage variance can be further analyzed by splitting it into which two sub-variances?
- A) Price and Mix variances
- B) Capacity and Efficiency variances
- C) Mix and Yield variances
- D) Expenditure and Volume variances
Show answer & explanation
Answer: C) Mix and Yield variances
When a product requires a mix of different materials, the total material usage variance can be split into a material mix variance (measuring the cost impact of changing the proportions) and a material yield variance (measuring the impact of the total quantity input versus output).
Question 8
A company uses a standard costing system. The standard material cost is Rs. 40 per kg. For a given period, the material usage variance was Rs. 306,000 Adverse. If the standard quantity allowed for the actual production was 242,350 kgs, what was the actual quantity of material used?
- A) 234,700 kgs
- B) 242,350 kgs
- C) 257,650 kgs
- D) 250,000 kgs
Show answer & explanation
Answer: D) 250,000 kgs
This is a "working backwards" calculation. Material Usage Variance = (Standard Quantity – Actual Quantity) × Standard Price. –306,000 (Adverse is negative) = (242,350 – AQ) × 40 –306,000 / 40 = 242,350 – AQ –7,650 = 242,350 – AQ AQ = 242,350 + 7,650 = 250,000 kgs.
Question 9
During a period, workers were paid for 4,200 total hours, but the actual active production time was only 4,100 hours due to unexpected machine breakdowns. If the standard labour rate is Rs. 100 per hour, what is the idle time variance?
- A) Rs. 10,000 Adverse
- B) Rs. 10,000 Favourable
- C) Rs. 410,000 Adverse
- D) Rs. 420,000 Favourable
Show answer & explanation
Answer: A) Rs. 10,000 Adverse
Idle time variance is calculated by taking the difference between hours paid and hours worked (the idle hours) and multiplying by the standard labour rate. Idle hours = 4,200 paid – 4,100 worked = 100 hours. 100 hours × Rs. 100 = Rs. 10,000. Idle time variance is always an Adverse variance.
Question 10
A factory budgeted its fixed production overheads at Rs. 168,000 for the period. The actual fixed overheads incurred were Rs. 170,000. What is the fixed production overhead expenditure variance?
- A) Rs. 2,000 Favourable
- B) Rs. 14,000 Adverse
- C) Rs. 2,000 Adverse
- D) Rs. 170,000 Adverse
Show answer & explanation
Answer: C) Rs. 2,000 Adverse
The fixed production overhead expenditure variance is simply the difference between the budgeted fixed overhead expenditure and the actual fixed overhead expenditure. Rs. 168,000 (Budgeted) – Rs. 170,000 (Actual) = Rs. 2,000 Adverse (because actual spending was higher).