CIMA BA2 · Chapter 7
Standard costing and variance analysis MCQs with Answers
14 multiple-choice questions on Standard costing and variance analysis for CIMA BA2 Fundamentals of Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What is meant by an ATTAINABLE standard?
- A) A standard that assumes perfect operating conditions with no waste or idle time
- B) A standard that is left unchanged for many years to show trends
- C) A standard that can be achieved under efficient operating conditions, with allowances for normal losses, waste and idle time
- D) A standard based on the actual results of the previous period
Show answer & explanation
Answer: C) A standard that can be achieved under efficient operating conditions, with allowances for normal losses, waste and idle time
An attainable standard is challenging but achievable, including allowances for normal inefficiencies. An ideal standard assumes perfect conditions and may demotivate staff. A basic standard is left unchanged over long periods, and a current standard reflects present conditions.
Question 2
A company purchased 8,400 kg of material for $39,480. The standard price is $4.80 per kg. What is the material price variance?
- A) $840 adverse
- B) $800 favourable
- C) $840 favourable
- D) $40,320 favourable
Show answer & explanation
Answer: C) $840 favourable
Standard cost of actual purchases = 8,400 x $4.80 = $40,320. Actual cost = $39,480. Material price variance = $40,320 - $39,480 = $840 favourable, because less was paid than the standard allows (actual price $4.70 per kg).
Question 3
A company produced 2,000 units in a period. The standard usage is 4 kg of material per unit at a standard price of $4.80 per kg, and 8,300 kg were actually used. What is the material usage variance?
- A) $1,440 favourable
- B) $1,440 adverse
- C) $1,410 adverse
- D) $1,920 adverse
Show answer & explanation
Answer: B) $1,440 adverse
Standard usage for actual output = 2,000 x 4 kg = 8,000 kg. Actual usage = 8,300 kg, so 300 kg more than standard. Usage variance = 300 x standard price $4.80 = $1,440 adverse. Usage variances are always valued at standard price.
Question 4
A team was paid $63,900 for 3,600 hours worked. The standard rate is $17.50 per hour and each unit should take 3 standard hours. Output was 1,150 units. What is the labour efficiency variance?
- A) $2,625 favourable
- B) $2,625 adverse
- C) $900 adverse
- D) $3,525 adverse
Show answer & explanation
Answer: B) $2,625 adverse
Standard hours for actual output = 1,150 x 3 = 3,450 hours. Actual hours = 3,600. Excess hours = 150 x $17.50 = $2,625 adverse. (Separately, the rate variance is $63,000 - $63,900 = $900 adverse.)
Question 5
Employees were paid for 5,000 hours, but because of a machine breakdown only 4,700 hours were worked. The standard rate is $15 per hour. Output was 1,600 units with a standard time of 2.8 hours per unit. What is the labour EFFICIENCY variance?
- A) $7,800 adverse
- B) $3,300 adverse
- C) $4,500 adverse
- D) $3,300 favourable
Show answer & explanation
Answer: B) $3,300 adverse
Standard hours for actual output = 1,600 x 2.8 = 4,480 hours. The efficiency variance compares hours actually WORKED with standard hours: (4,700 - 4,480) x $15 = $3,300 adverse. The 300 idle hours are reported separately as an idle time variance of 300 x $15 = $4,500 adverse; using hours paid would double-count them.
Question 6
Variable production overheads are absorbed at $6 per labour hour worked. In a period, 4,700 labour hours were worked and actual variable overheads were $29,000. What is the variable overhead EXPENDITURE variance?
- A) $800 favourable
- B) $800 adverse
- C) $1,000 favourable
- D) $2,120 adverse
Show answer & explanation
Answer: B) $800 adverse
Expected variable overhead for the hours actually worked = 4,700 x $6 = $28,200. Actual expenditure = $29,000. Expenditure variance = $29,000 - $28,200 = $800 adverse, because more was spent than standard for the hours worked.
Question 7
Budgeted fixed production overheads for a period were $120,000. Actual fixed production overheads were $126,500. What is the fixed overhead EXPENDITURE variance?
- A) $6,500 favourable
- B) $126,500 adverse
- C) $5,500 adverse
- D) $6,500 adverse
Show answer & explanation
Answer: D) $6,500 adverse
The fixed overhead expenditure variance is the difference between budgeted and actual fixed overhead expenditure: $126,500 - $120,000 = $6,500. It is adverse because actual spending exceeded the budget.
Question 8
A company uses standard MARGINAL costing. Budgeted fixed production overheads were $120,000, based on budgeted production of 10,000 units. Actual production was 9,400 units and actual fixed production overheads were $118,000. What fixed overhead variance will appear in the statement reconciling budgeted and actual profit?
- A) $5,200 adverse
- B) $2,000 favourable
- C) $7,200 adverse
- D) $2,000 adverse
Show answer & explanation
Answer: B) $2,000 favourable
Under marginal costing, fixed overheads are not absorbed into units, so there is no volume variance and the only fixed overhead variance is the expenditure variance: budgeted $120,000 - actual $118,000 = $2,000 favourable, because less was spent than budgeted. $7,200 adverse is the absorption costing volume variance ((9,400 - 10,000) x $12) and $5,200 adverse is the absorption costing total variance ($112,800 absorbed - $118,000 actual); neither arises in a marginal costing reconciliation.
Question 9
A company sold 5,200 units for total revenue of $247,000. The standard selling price is $50 per unit. What is the sales price variance?
- A) $13,000 favourable
- B) $13,000 adverse
- C) $53,000 adverse
- D) $2.50 adverse
Show answer & explanation
Answer: B) $13,000 adverse
Standard revenue for actual sales = 5,200 x $50 = $260,000. Actual revenue = $247,000. Sales price variance = $247,000 - $260,000 = $13,000 adverse, because the average actual price ($47.50) was below standard.
Question 10
Budgeted sales were 6,000 units but actual sales were 5,200 units. The standard selling price is $50, the standard variable cost is $28 per unit and the standard full production cost is $36 per unit. The company uses STANDARD MARGINAL COSTING. What is the sales volume variance?
- A) $11,200 adverse
- B) $17,600 adverse
- C) $40,000 adverse
- D) $17,600 favourable
Show answer & explanation
Answer: B) $17,600 adverse
Under marginal costing, the sales volume variance is valued at standard contribution per unit: $50 - $28 = $22. Volume shortfall = 6,000 - 5,200 = 800 units. Variance = 800 x $22 = $17,600 adverse. Valuing at standard profit ($50 - $36 = $14) would be the absorption costing variance.
Question 11
A company reports a favourable material price variance and an adverse material usage variance in the same period. Which of the following is the most likely single explanation for both variances?
- A) Material prices rose unexpectedly during the period
- B) Highly skilled staff used material more carefully than expected
- C) The standard price was set too low
- D) Cheaper, lower-quality material was bought, which led to more wastage in production
Show answer & explanation
Answer: D) Cheaper, lower-quality material was bought, which led to more wastage in production
Buying lower-grade material explains both results: the price paid was below standard (favourable price variance), but poorer quality caused more waste and rejects (adverse usage variance). A price rise or a low standard price would cause an adverse price variance, and careful skilled staff would cause a favourable usage variance.
Question 12
The labour efficiency variance for a period was $2,400 favourable. The standard rate is $16 per hour, the standard time is 1.5 hours per unit, and 9,000 hours were worked. How many units were produced?
- A) 5,900 units
- B) 6,100 units
- C) 6,000 units
- D) 9,150 units
Show answer & explanation
Answer: B) 6,100 units
Favourable variance in hours = $2,400 / $16 = 150 hours, so standard hours for actual output exceeded actual hours. Standard hours = 9,000 + 150 = 9,150. Units produced = 9,150 / 1.5 = 6,100 units.
Question 13
A standard costing operating statement starts with budgeted profit of $84,000. The variances for the period are: sales volume $6,000 adverse, sales price $4,500 favourable, total materials $3,200 adverse, total labour $1,800 favourable, fixed overhead expenditure $2,500 adverse. What is the actual profit?
- A) $89,400
- B) $66,000
- C) $82,500
- D) $78,600
Show answer & explanation
Answer: D) $78,600
Actual profit = budgeted profit - adverse variances + favourable variances = $84,000 - $6,000 + $4,500 - $3,200 + $1,800 - $2,500 = $78,600.
Question 14
Variable production overheads are absorbed at $4 per labour hour worked, and the standard time is 2 labour hours per unit. In a period, employees were paid for 19,800 hours, but 600 of these hours were idle time because of a machine breakdown. Variable overheads are incurred only when labour is working. Actual output was 9,800 units. What is the variable overhead EFFICIENCY variance?
- A) $800 adverse
- B) $1,600 adverse
- C) $1,600 favourable
- D) $2,400 favourable
Show answer & explanation
Answer: C) $1,600 favourable
Hours actually worked = 19,800 - 600 = 19,200. Standard hours for actual output = 9,800 x 2 = 19,600. Variable overhead efficiency variance = (19,600 - 19,200) x $4 = $1,600 favourable, because the output took fewer hours than standard. Using hours paid (19,800) would wrongly give $800 adverse; idle hours carry no variable overhead, so they are excluded.