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Job, Batch, Service costing MCQs

Marginal cost and Absorption costing MCQs

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Variance Analysis MCQs

## Variance Analysis MCQs

A variance is the difference between a planned, budgeted or standard cost and the actual cost incurred. There is Cost variance analysis and Revenue variance analysis. Variances are calculated for Cost and Management accounting purposes and to prepare a variance analysis report (operating statement) for management. Here on MCQs.club we have designed easy Multiple-Choice Questions (MCQs) which makes it easier to understand the variance analysis. Our MCQs cover the meaning/types/definition of variance analysis. There are Sales/Material/Labour/Overheads variances. Our designed MCQs are useful to Professional accounting exams and Competitive exams.

**A variance is the difference between a planned, budgeted or standard cost and the actual cost incurred. The same comparisons may be made for revenues.**

**True**- False

**The process by which the total difference between standard and actual results is analysed is known as variance analysis.**

- False
**True**

**Variances can be divided into:**

- Variable cost variances
- Sales variances
- Fixed production overhead variances
**All of the above**

**A cost variance is the difference between an actual cost and a standard cost.**

- When actual cost is higher than standard cost, the cost variance is adverse (A) or unfavourable (U).
- When actual cost is less than standard cost, the cost variance is favourable (F).
**The above is correct**- The above is incorrect

**Variances are calculated, relating to:**

- Direct materials, direct labour
- Variable production overhead and fixed production overhead
**Both A&B**- None

**In a cost accounting system, cost variances are adjustments to the profit in an accounting period.**

- Favourable variances increase the reported profit.
- Adverse variances reduce the reported profit.
**True**- False

**The method of calculating cost variances is similar for all variable production cost items (direct materials, direct labour and variable production overhead), while a different method of calculating cost variances is required for fixed production overhead.**

- The above statement is incorrect
**The above statement is correct**

**Variances might be reported in a statement for the accounting period that reconciles the budgeted profit with the actual profit for the period. This statement is known as:**

- Statement of evaluation
- Statement of Reconciliation
**Operating statement**- None

**The direct materials total cost variance can be analysed into:**

**Price variance and usage variance**- Wage variance and usage variance
- Efficiency variance and price variance
- Usage variance and rate variance

**If there are two or more direct materials, a price/usage variance is calculated separately for each material.**

- False
**True**

**What are the possible causes of**__favourable__materials price variances?

- Different suppliers were used and these charged a lower price (favourable price variance) than the usual supplier.
- Materials were purchased in sufficient quantities to obtain a bulk purchase discount (a quantity discount), resulting in a favourable price variance.
- Materials were bought that were of lower quality than standard and so cheaper than expected.
**All of the above**

**What are the possible causes of adverse materials price variances?**

- Different suppliers were used and these charged a higher price (adverse price variance) than the usual supplier.
- Suppliers increased their prices by more than expected. (Higher prices might be caused by an unexpected increase in the rate of inflation.)
- There was a severe shortage of the materials, so that prices in the market were much higher than expected.
- Materials were bought that were better quality than standard and more expensive than expected.
**All of the above**

**What are the possible causes of favourable materials usage variances?**

- Wastage rates were lower than expected.
- Improvements in production methods resulted in more efficient usage of materials (favourable usage variance).
**Both A&B**- None

**Possible causes of adverse materials usage variances include:**

- Wastage rates were higher than expected.
- Poor materials handling resulted in a large amount of breakages (adverse usage variance). Breakages mean that a quantity of materials input to the production process are wasted.
- Materials used were of cheaper quality than standard, with the result that more materials had to be thrown away as waste.
**All of the above**

**The direct labour total cost variance can be analysed into:**

**Rate variance and efficiency variance**- Price variance and efficiency variance
- Wage variance and usage variance
- None

**The direct labour rate variance is calculated for the actual number of hours ______ for.**

- Worked
**Paid**- Both A&B
- None

**If there are two or more different types or grades of labour, each paid a different standard rate per hour, a rate variance is calculated separately for each labour grade.**

**The above is true**- The above is false

**The direct labour efficiency variance is calculated for the hours _______ on the units produced.**

**Used/worked**- Paid
- Both A&B
- None

**Idle time occurs when the direct labour employees are being paid but have no work to do. A feature of idle time is that it is recorded, and the hours ‘lost’ due to idle time are measured. Idle time variance is part of the efficiency variance.**

- The above statement is incorrect
**The above statement is correct**

**Calculating the idle time variance will affect the calculation of the direct labour efficiency variance.**__If idle time occurs but is not recorded__the idle time variance is part of the direct labour efficiency variance.

**True**- False

**Possible causes of favourable labour rate variances include:**

- Using direct labour employees who were relatively inexperienced and new to the job (favourable rate variance, because these employees would be paid less than ‘normal’).
- Actual pay increase turning out to be less than expected.
**Both A&B**- None

**Possible causes of adverse labour rate variances include:**

- An increase in pay for employees.
- Working overtime hours paid at a premium above the basic rate.
- Using direct labour employees who were more skilled and experienced than the ‘normal’ and who are paid more than the standard rate per hour (adverse rate variance).
**All of the above**

**Possible causes of favourable labour efficiency variances include:**

- More efficient methods of working. Good morale amongst the workforce and good management with the result that the work force is more productive.
- If incentive schemes are introduced to the workforce, this may encourage employees to work more quickly and therefore give rise to a favourable efficiency variance.
- Using employees who are more experienced than ‘standard’, resulting in favourable efficiency variances as they are able to complete their work more quickly than less experienced colleagues.
**All of the above**

**Possible causes of adverse labour efficiency variances include:**

- Using employees who are less experienced than ‘standard’, resulting in adverse efficiency variances.
- An event causing poor morale.
**Both A&B**- None

**The variable production overhead total cost variance can be analysed into:**

**Expenditure variance and efficiency variance.**- Capacity variance and efficiency variance
- Usage variance and expenditure variance
- None

**It is normally assumed that variable production overheads are incurred during hours actively worked, but not during any hours of idle time.**

- The above statement is incorrect
**The above statement is correct**

**The variable production overhead expenditure variance is calculated by taking the actual number of hours ______.**

- Paid
- Worked
- Used
**Both B&C**

**The total fixed overhead cost variance is the total amount of under-absorbed or over-absorbed overheads, where overheads are absorbed at the standard fixed overhead cost per unit.**

**Correct**- Incorrect

**The total under- or over-absorption of fixed overheads can be analysed into:**

**Expenditure variance and volume variance.**- Expenditure variance and rate variance
- Volume variance and wage variance
- Volume variance and usage variance

**Fixed production overhead volume variance can be further analysed in standard absorption costing, into a fixed overhead:**

**Capacity variance and efficiency variance**- Capacity variance and expenditure variance
- Efficiency variance and expenditure variance
- None

**The fixed production overhead volume variance is measured in __________.**

- Units of output
- Standard hours
**Either units of output or standard hours**- None

**Any volume variance might be due to:**

- The company has worked a different number of hours than budgeted for a variety of reasons. They have operated at a different capacity.
- During the hours worked the company has operated at a different level of efficiency to that budgeted.
**Both A&B**- None

**Marginal costing variances are calculated exactly as absorption costing variances with some differences. Identify the differences:**

- The sales volume variance is expressed as a monetary amount by multiplying the volume variance expressed in units by the standard contribution per unit rather than the standard profit per unit.
- There is no fixed overhead volume variance.
**Both A&B**- None

**All variable cost variances are calculated as same under standard total absorption costing and standard marginal costing.**

**True**- False

**The direct materials usage variance can be analysed into:**

- Materials mix variance
- Materials yield variance
**Both A&B**- None

**The materials mix variance measures how much of the total usage variance is attributable to the fact that the actual combination or mixture of materials that was used was more expensive or less expensive than the standard mixture for the materials.**

**The above statement is correct**- The above statement is incorrect

**The materials yield variance is the difference between the actual yield from a given input and the yield that the actual input should have given in standard terms. It indicates the effect on costs of the total materials inputs yielding more or less output than expected.**

- The above statement is incorrect
**The above statement is correct**

**What would be the general causes of variances?**

- Inappropriate standard: Incorrect or out of date standards could have been used which will not reflect current conditions. For example, a material price standard may have been wrong if an old price was used or the wrong type of material was priced.
- Inaccurate recording of actual costs: For example, if time-sheets are filled in incorrectly, this may lead to variances.
- Random events: Examples include unusual adverse weather conditions and a flu epidemic. These may cause additional unforeseen costs.
- Operating inefficiency: If the variance is not caused by inappropriate standards, inaccurate recording or random events, then it must be due to operating efficiency. The operating efficiency may be due to controllable or uncontrollable factors.
**All of the above**

**When two variances are interdependent (interrelated) one will usually be adverse and the other one favourable.**

**True**- False

**The sales variances can be analyzed into:**

**Selling price variance and Sales volume profit variance**- Selling price variance and Sales revenue variance
- Price variance and Efficiency variance
- None

**There are two main differences between the variances calculated in an absorption costing system and the variances calculated in a marginal costing system.**

- In the marginal costing system, the only fixed overhead variance is an expenditure variance.
- The sales volume variance is valued at standard contribution margin, not standard profit margin.
**The above statement is correct**- The above statement is incorrect

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