Q.1 What is a standard cost?
The actual cost incurred in production
The estimated cost of a product or service under normal conditions
The selling price of a product
The historical cost of materials
Explanation - A standard cost is a predetermined or estimated cost of producing a product under normal operating conditions.
Correct answer is: The estimated cost of a product or service under normal conditions
Q.2 Which of the following is NOT a purpose of standard costing?
Cost control
Profit maximization
Performance evaluation
Determining actual selling price
Explanation - Standard costing helps in cost control and performance evaluation, but it is not used for deciding the actual selling price.
Correct answer is: Determining actual selling price
Q.3 Material variance is calculated as:
Standard cost - Actual cost
Standard quantity × Standard price - Actual quantity × Actual price
(Standard price × Actual quantity) - (Actual price × Actual quantity)
Actual cost - Standard cost
Explanation - Material variance compares the cost that should have been incurred at standard rates with the actual cost incurred.
Correct answer is: (Standard price × Actual quantity) - (Actual price × Actual quantity)
Q.4 What is labor efficiency variance?
Difference between standard and actual hours worked
Difference between actual and standard wage rates
Difference between actual and standard hours multiplied by standard rate
Difference between total wages and overheads
Explanation - Labor efficiency variance measures the cost impact of using more or fewer hours than the standard hours allowed.
Correct answer is: Difference between actual and standard hours multiplied by standard rate
Q.5 Material price variance is favorable when:
Actual price > Standard price
Actual price < Standard price
Actual quantity > Standard quantity
Standard quantity > Actual quantity
Explanation - When the actual price of material is less than the standard price, the variance is favorable as the cost is lower than expected.
Correct answer is: Actual price < Standard price
Q.6 Which of the following is a controllable variance?
Material usage variance
Market price fluctuation
Natural calamities
Government taxes
Explanation - Controllable variances are those which can be influenced by the management, like material usage or labor efficiency.
Correct answer is: Material usage variance
Q.7 What does a favorable variance indicate?
Actual cost is less than standard cost
Actual cost is more than standard cost
Production is delayed
Sales are below target
Explanation - A favorable variance occurs when the actual cost is lower than the standard cost, indicating efficiency or savings.
Correct answer is: Actual cost is less than standard cost
Q.8 Which variance measures the cost effect of paying a different rate than standard?
Material usage variance
Labor rate variance
Overhead efficiency variance
Sales variance
Explanation - Labor rate variance shows the effect of paying actual wage rates different from the standard wage rates.
Correct answer is: Labor rate variance
Q.9 Standard costing is most useful in which type of industry?
Service industry
Mass production industry
Trading business
Retail business
Explanation - Standard costing is particularly useful in industries with repetitive production where costs can be standardized.
Correct answer is: Mass production industry
Q.10 Overhead variance can be divided into:
Material and labor variance
Fixed and variable overhead variance
Selling and administrative variance
Direct and indirect variance
Explanation - Overhead variances are classified into fixed and variable components to analyze efficiency and spending.
Correct answer is: Fixed and variable overhead variance
Q.11 What is the formula for labor rate variance?
(Standard hours × Standard rate) - (Actual hours × Standard rate)
(Actual hours × Actual rate) - (Actual hours × Standard rate)
(Standard hours × Standard rate) - (Actual hours × Actual rate)
(Actual hours × Standard rate) - (Standard hours × Standard rate)
Explanation - Labor rate variance = Actual hours × (Actual rate - Standard rate), measuring the cost impact of wage rate differences.
Correct answer is: (Actual hours × Actual rate) - (Actual hours × Standard rate)
Q.12 Material usage variance is calculated as:
(Standard quantity × Standard price) - (Actual quantity × Actual price)
(Standard quantity × Standard price) - (Actual quantity × Standard price)
(Actual quantity × Standard price) - (Standard quantity × Actual price)
(Actual quantity × Actual price) - (Standard quantity × Standard price)
Explanation - Material usage variance measures the difference in cost due to the quantity of material used compared to the standard quantity allowed.
Correct answer is: (Standard quantity × Standard price) - (Actual quantity × Standard price)
Q.13 Which of the following is true about standard costs?
They are based on historical costs
They are predetermined costs
They are always equal to actual costs
They include selling expenses only
Explanation - Standard costs are estimated or predetermined costs used for planning, control, and variance analysis.
Correct answer is: They are predetermined costs
Q.14 What is the main objective of variance analysis?
To increase production volume
To identify reasons for deviations between actual and standard costs
To calculate selling price
To record journal entries
Explanation - Variance analysis is used to control costs by identifying causes of deviations and taking corrective actions.
Correct answer is: To identify reasons for deviations between actual and standard costs
Q.15 A labor efficiency variance will be zero when:
Actual hours = Standard hours allowed
Actual wage rate = Standard wage rate
Production exceeds target
Labor cost is higher than standard
Explanation - If actual hours worked equal standard hours allowed for the output, there is no efficiency variance.
Correct answer is: Actual hours = Standard hours allowed
Q.16 What type of variance is caused by paying higher or lower material prices than standard?
Material usage variance
Material price variance
Labor rate variance
Labor efficiency variance
Explanation - Material price variance measures the impact of paying a different rate than the standard for materials purchased.
Correct answer is: Material price variance
Q.17 Variable overhead spending variance occurs due to:
Change in production volume
Change in fixed overheads
Difference between actual and standard variable overhead costs
Change in sales revenue
Explanation - Spending variance occurs when the actual overhead cost differs from the expected (standard) cost for the actual hours worked.
Correct answer is: Difference between actual and standard variable overhead costs
Q.18 Which of the following is an uncontrollable variance?
Labor efficiency variance
Material price variance due to market fluctuation
Material usage variance
Labor rate variance due to overtime
Explanation - Uncontrollable variances are caused by factors outside the control of management, like sudden market price changes.
Correct answer is: Material price variance due to market fluctuation
Q.19 Which variance measures the cost effect of inefficient use of direct labor hours?
Material price variance
Labor efficiency variance
Variable overhead spending variance
Fixed overhead volume variance
Explanation - Labor efficiency variance reflects extra or saved cost due to the deviation of actual labor hours from standard hours.
Correct answer is: Labor efficiency variance
Q.20 Fixed overhead volume variance arises due to:
Difference between actual and standard fixed overheads
Change in actual production volume compared to expected
Difference in labor rates
Material wastage
Explanation - Fixed overhead volume variance measures the cost impact of producing more or fewer units than planned.
Correct answer is: Change in actual production volume compared to expected
Q.21 Which of the following is calculated first in standard costing?
Overhead variance
Material and labor variances
Selling and administrative variance
Profit variance
Explanation - Material and labor variances are usually calculated first as they form the main components of total cost and are easier to measure.
Correct answer is: Material and labor variances
Q.22 If actual material used is less than standard, the material usage variance is:
Favorable
Unfavorable
Zero
Controllable
Explanation - Using less material than allowed reduces cost, creating a favorable variance.
Correct answer is: Favorable
Q.23 Which of the following is true about overhead variances?
They can be ignored if small
They include both spending and efficiency components
They only relate to fixed costs
They only relate to selling expenses
Explanation - Overhead variances include spending and efficiency (or volume) variances to analyze cost control and efficiency.
Correct answer is: They include both spending and efficiency components
Q.24 Standard costing is mainly a tool for:
Inventory valuation
Cost control
Marketing strategy
Financial reporting
Explanation - Standard costing provides a benchmark to compare actual costs and helps management control costs effectively.
Correct answer is: Cost control