1. A company bought 8,000 kg of material for CU 51,200 and used 7,600 kg in production. The standard price is CU 6.00 per kg. What is the material price variance?

A) CU 2,400 adverse
B) CU 3,200 adverse
C) CU 3,200 favourable
D) CU 5,600 adverse

Correct: B difficult Variance analysis

Price variance is calculated on the quantity purchased: standard cost of 8,000 kg = 8,000 x 6 = CU 48,000, against actual cost CU 51,200, so CU 3,200 adverse. If you answered CU 5,600 adverse you used the quantity used (7,600 x 6 = 45,600). If you answered CU 3,200 favourable you reversed the sign. If you answered CU 2,400 adverse you calculated on 6,000 kg.

2. The standard allows 5 kg of material per unit at CU 6.00 per kg. 1,500 units were produced and 7,800 kg were used. What is the material usage variance?

A) CU 1,800 adverse
B) CU 1,800 favourable
C) CU 3,600 adverse
D) CU 46,800 adverse

Correct: A difficult Variance analysis

Standard usage for 1,500 units = 7,500 kg. Excess usage = 300 kg x CU 6.00 = CU 1,800 adverse. If you answered CU 1,800 favourable you reversed the sign. If you answered CU 3,600 adverse you doubled it. If you answered CU 46,800 adverse you valued the actual usage and not the excess.

3. Standard labour rate is CU 12 per hour. 5,400 hours were paid for at a total cost of CU 70,200, of which 5,250 hours were worked. What is the labour rate variance?

A) CU 5,400 favourable
B) CU 7,200 adverse
C) CU 70,200 adverse
D) CU 5,400 adverse

Correct: D difficult Variance analysis

Standard cost of the hours paid = 5,400 x 12 = CU 64,800. Actual cost is CU 70,200, so the variance is CU 5,400 adverse (the actual rate was CU 13 per hour). If you answered CU 5,400 favourable you reversed the sign. If you answered CU 70,200 you gave the actual cost. If you answered CU 7,200 adverse you used the 5,250 hours worked instead of the hours paid (70,200 - 63,000).

4. The standard time is 3 hours per unit at CU 12 per hour. 1,800 units were produced using 5,250 hours worked (5,400 hours were paid). What is the labour efficiency variance?

A) CU 1,800 adverse
B) CU 1,800 favourable
C) CU 2,700 favourable
D) CU 3,600 favourable

Correct: B difficult Variance analysis

Standard hours for 1,800 units = 5,400. Hours worked = 5,250, so 150 hours were saved: 150 x 12 = CU 1,800 favourable. The efficiency variance is based on hours worked, not hours paid. If you answered CU 1,800 adverse you reversed the sign. If you answered CU 2,700 favourable you used a saving of 225 hours. If you answered CU 3,600 favourable you doubled it.

5. Variable overheads are absorbed at CU 4 per labour hour. Standard hours for the output were 5,400 and actual hours worked were 5,250. What is the variable overhead efficiency variance?

A) CU 600 adverse
B) CU 1,800 favourable
C) CU 21,600 favourable
D) CU 600 favourable

Correct: D difficult Variance analysis

Efficiency variance = hours saved x variable overhead rate = (5,400 - 5,250) x 4 = CU 600 favourable. If you answered CU 600 adverse you reversed the sign. If you answered CU 1,800 you used the labour rate of CU 12 and not CU 4 (150 x 12). If you answered CU 21,600 you used standard hours x rate.

6. Budgeted fixed overheads were CU 120,000 and actual fixed overheads CU 126,500. Output was higher than budget. What is the fixed overhead expenditure variance?

A) CU 6,500 adverse
B) CU 6,500 favourable
C) CU 120,000 adverse
D) Nil, because output was higher

Correct: A difficult Variance analysis

The expenditure variance is the actual fixed overhead less the budgeted fixed overhead: 126,500 - 120,000 = CU 6,500 adverse. Fixed costs are not flexed with output, so higher output does not remove the variance.

7. The standard selling price is CU 25 per unit. 4,200 units were sold at CU 24.50 each. What is the sales price variance?

A) CU 2,100 favourable
B) CU 2,500 adverse
C) CU 2,100 adverse
D) CU 5,000 adverse

Correct: C difficult Variance analysis

Price variance = (24.50 - 25.00) x 4,200 = CU 2,100 adverse. If you answered CU 2,100 favourable you reversed the sign. If you answered CU 2,500 adverse you applied 0.50 to 5,000 units. If you answered CU 5,000 adverse you applied CU 1 to 5,000 units.

8. Budgeted sales were 4,000 units and actual sales 4,200 units. Standard selling price is CU 25 and standard variable cost CU 14. Under marginal costing, what is the sales volume variance?

A) CU 2,200 adverse
B) CU 2,800 favourable
C) CU 5,000 favourable
D) CU 2,200 favourable

Correct: D difficult Variance analysis

Under marginal costing the sales volume variance is valued at standard contribution: (25 - 14) = CU 11 x 200 extra units = CU 2,200 favourable. If you answered CU 2,800 you used the variable cost (200 x 14). If you answered CU 5,000 you used the price (200 x 25). If you answered CU 2,200 adverse you reversed the sign.

9. Budgeted profit is CU 50,000. Variances: sales volume CU 4,000 favourable; sales price CU 2,500 adverse; total cost variances CU 3,000 adverse. What is the actual profit?

A) CU 40,500
B) CU 51,500
C) CU 48,500
D) CU 59,500

Correct: C difficult Variance analysis

Actual profit = budget 50,000 + 4,000 - 2,500 - 3,000 = CU 48,500. Favourable variances increase profit and adverse ones reduce it. If you answered CU 59,500 you added all variances. If you answered CU 40,500 you deducted all. If you answered CU 51,500 you treated the sales price variance as favourable.

10. A company buys cheaper, lower-quality material than the standard. Which combination of variances is most likely?

A) Adverse material price and favourable material usage
B) Favourable material price, favourable usage and favourable labour efficiency
C) Favourable material price, adverse material usage and possibly adverse labour efficiency
D) Adverse labour rate only

Correct: C difficult Variance analysis

Cheaper material gives a favourable price variance but is likely to produce more waste (adverse usage) and take more time to work (adverse efficiency). Variances are interrelated, so a favourable variance in one area may cause an adverse variance elsewhere.

11. A national wage agreement raised hourly pay for all manufacturers by 4%. Which statement about the resulting adverse labour rate variance is correct?

A) It is largely uncontrollable by the production manager and should not be used to judge his or her performance
B) It should be charged to the production manager as the person using the labour
C) It is a sales variance, because wages rise with prices
D) It should be ignored in all reports

Correct: A difficult Variance analysis

The controllability principle means managers are judged on factors they influence. A national wage rise is external, but it should still be reported (and the standard revised) for planning purposes.

12. The material usage variance is CU 2,400 adverse at a standard price of CU 4.00 per kg. The standard is 2.5 kg per unit and 3,000 units were produced. How many kilograms were actually used?

A) 8,100 kg
B) 600 kg
C) 7,500 kg
D) 8,400 kg

Correct: A difficult Variance analysis

Excess usage = 2,400 / 4 = 600 kg. Standard usage = 3,000 x 2.5 = 7,500 kg. Actual usage = 7,500 + 600 = 8,100 kg (adverse means more than standard). If you answered 600 kg you gave only the excess. If you answered 7,500 kg you gave the standard. If you answered 8,400 kg you added 900 kg.

13. A favourable labour rate variance and an adverse labour efficiency variance occur together. What is the most likely cause?

A) The purchase of better quality materials
B) A pay rise agreed during the period
C) A rise in the selling price
D) The use of less skilled, lower-paid labour that takes longer to complete the work

Correct: D difficult Variance analysis

Less skilled labour is paid less than the standard rate (favourable rate) but works more slowly (adverse efficiency). A pay rise would cause an adverse rate variance.

14. A product uses 4 kg of material at CU 5.50, 2.5 labour hours at CU 12 per hour and variable overhead of CU 3 per labour hour. Fixed overheads are CU 5 per unit. What is the standard variable cost per unit?

A) CU 52.00
B) CU 59.50
C) CU 64.50
D) CU 22.00

Correct: B difficult Standard costing

Materials 22.00 + labour 30.00 + variable overhead 7.50 = CU 59.50. Fixed overhead is excluded from standard variable cost. If you answered CU 64.50 you included the fixed overhead. If you answered CU 52.00 you left out variable overhead. If you answered CU 22.00 you gave the material cost only.

15. The flexed standard cost per unit is CU 18. 2,000 units were produced at an actual total cost of CU 38,400. What is the total cost variance?

A) CU 2,400 favourable
B) CU 36,000 adverse
C) CU 2,400 adverse
D) CU 38,400 adverse

Correct: C difficult Variance analysis

Standard cost of 2,000 units = 2,000 x 18 = CU 36,000. Actual cost is CU 38,400, so the variance is CU 2,400 adverse. If you answered CU 2,400 favourable you reversed the sign. The other figures are the standard and actual totals.

16. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the material price variance?

A) CU 6,000 favourable
B) CU 6,000 adverse
C) CU 10,000 adverse
D) CU 16,000 adverse

Correct: B difficult Variance analysis

Actual quantity at standard price = 40,000 x 5 = CU 200,000, against actual cost CU 206,000: CU 6,000 adverse. If you answered favourable you reversed the sign. If you answered CU 10,000 you gave the usage variance. If you answered CU 16,000 you gave the total material variance.

17. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the material usage variance?

A) CU 10,300 adverse
B) CU 10,000 adverse
C) CU 10,000 favourable
D) CU 16,000 adverse

Correct: B difficult Variance analysis

Standard usage for 9,500 units = 38,000 kg. Excess 2,000 kg x standard price CU 5 = CU 10,000 adverse. If you answered CU 10,300 you used the actual price (CU 5.15). If you answered favourable you reversed the sign. If you answered CU 16,000 you gave the total material variance.

18. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the labour rate variance?

A) CU 6,030 adverse
B) CU 6,030 favourable
C) CU 5,700 adverse
D) CU 13,530 adverse

Correct: A difficult Variance analysis

Hours paid at standard rate = 20,100 x 12 = CU 241,200, against actual CU 247,230: CU 6,030 adverse (actual rate CU 12.30). If you answered favourable you reversed the sign. If you answered CU 5,700 you applied the CU 0.30 rate difference to standard hours (19,000) instead of hours paid. If you answered CU 13,530 you gave the efficiency variance at the actual rate.

19. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the labour efficiency variance (all hours paid are treated as worked)?

A) CU 13,530 adverse
B) CU 13,200 adverse
C) CU 6,030 adverse
D) CU 13,200 favourable

Correct: B difficult Variance analysis

Standard hours for 9,500 units = 19,000. Actual hours 20,100. Excess 1,100 x CU 12 standard rate = CU 13,200 adverse. If you answered CU 13,530 you used the actual rate. If you answered CU 6,030 you gave the rate variance. If you answered favourable you reversed the sign.

20. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the variable overhead efficiency variance?

A) CU 700 adverse
B) CU 3,300 favourable
C) CU 3,300 adverse
D) CU 4,000 adverse

Correct: C difficult Variance analysis

Excess hours 1,100 x CU 3 = CU 3,300 adverse. If you answered CU 700 you gave the expenditure variance (20,100 x 3 = 60,300 against 61,000). If you answered favourable you reversed the sign. If you answered CU 4,000 you added the expenditure variance to the efficiency variance (3,300 + 700).

21. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the fixed overhead volume variance?

A) CU 8,000 adverse
B) CU 8,000 favourable
C) CU 5,000 adverse
D) CU 13,000 adverse

Correct: A difficult Variance analysis

Budgeted overhead CU 160,000; rate CU 16 per unit. Production was 500 units below budget: 500 x 16 = CU 8,000 adverse. If you answered favourable you reversed the sign. If you answered CU 5,000 you gave the expenditure variance. If you answered CU 13,000 you gave the total under-absorption (165,000 - 152,000).

22. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. Assuming absorption costing, what is the sales volume variance?

A) CU 30,000 adverse
B) CU 18,000 adverse
C) CU 14,000 favourable
D) CU 14,000 adverse

Correct: D difficult Variance analysis

Standard profit per unit = 80 - (20 + 24 + 6 + 16) = CU 14. Shortfall of 1,000 units x 14 = CU 14,000 adverse. If you answered CU 30,000 you used contribution (marginal costing). If you answered CU 18,000 you gave the sales price variance. If you answered favourable you reversed the sign.

23. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. Assuming marginal costing, what is the sales volume variance?

A) CU 14,000 adverse
B) CU 18,000 adverse
C) CU 30,000 adverse
D) CU 30,000 favourable

Correct: C difficult Variance analysis

Standard contribution per unit = 80 - 20 - 24 - 6 = CU 30. Shortfall of 1,000 units x 30 = CU 30,000 adverse. If you answered CU 14,000 you used the absorption profit per unit. If you answered CU 18,000 you gave the sales price variance. If you answered favourable you reversed the sign.

24. Standard cost card per unit of P: material 4 kg at CU 5; labour 2 hours at CU 12; variable overhead 2 hours at CU 3; fixed overhead 2 hours at CU 8 (budget 10,000 units); selling price CU 80. Actual: production 9,500 units; materials 40,000 kg purchased and used for CU 206,000; labour 20,100 hours paid CU 247,230; variable overhead CU 61,000; fixed overhead CU 165,000; sales 9,000 units at CU 78. What is the sales price variance?

A) CU 18,000 favourable
B) CU 18,000 adverse
C) CU 19,000 adverse
D) CU 14,000 adverse

Correct: B difficult Variance analysis

9,000 units sold at CU 2 below standard = CU 18,000 adverse. If you answered favourable you reversed the sign. If you answered CU 19,000 you used production of 9,500 (9,500 x 2). If you answered CU 14,000 you gave the absorption sales volume variance.

25. Budgeted profit is CU 100,000. Variances: sales price CU 8,000 F; sales volume CU 12,000 A; material price CU 5,000 A; material usage CU 3,000 F; labour rate CU 2,000 F; labour efficiency CU 4,000 A. What is actual profit?

A) CU 92,000
B) CU 108,000
C) CU 88,000
D) CU 116,000

Correct: A difficult Variance analysis

Net variance = +8 - 12 - 5 + 3 + 2 - 4 = -CU 8,000, so actual profit = 100,000 - 8,000 = CU 92,000. If you answered CU 108,000 you reversed every sign. If you answered CU 88,000 you treated the labour rate variance as adverse. If you answered CU 116,000 you added the sales volume variance.