Q.1 What is the primary objective of standard costing?
To eliminate all costs
To provide a benchmark for cost control
To replace financial accounting
To determine market price of products
Explanation - Standard costing establishes predetermined costs to help measure performance and control expenses.
Correct answer is: To provide a benchmark for cost control
Q.2 Which of the following is NOT a type of variance in standard costing?
Material variance
Labor variance
Overhead variance
Revenue variance
Explanation - Standard costing focuses on cost variances (materials, labor, overhead), not revenue.
Correct answer is: Revenue variance
Q.3 Material Price Variance is calculated as:
(Standard Price - Actual Price) × Actual Quantity
(Actual Price - Standard Price) × Standard Quantity
(Actual Price - Standard Price) × Actual Quantity
(Standard Price - Actual Price) × Standard Quantity
Explanation - Material Price Variance measures the difference between standard and actual price for the quantity purchased.
Correct answer is: (Standard Price - Actual Price) × Actual Quantity
Q.4 A favorable variance indicates that:
Actual cost is higher than standard cost
Actual cost is lower than standard cost
There is an accounting error
Production has decreased
Explanation - A favorable variance occurs when actual costs are less than expected standard costs, indicating efficiency.
Correct answer is: Actual cost is lower than standard cost
Q.5 Labor Efficiency Variance is concerned with:
Difference in labor rate only
Difference in actual hours worked vs standard hours allowed
Difference in total labor cost
Difference in material usage
Explanation - Labor Efficiency Variance measures how efficiently labor time was used compared to the standard time set.
Correct answer is: Difference in actual hours worked vs standard hours allowed
Q.6 Which variance arises due to paying a higher wage rate than standard?
Material Price Variance
Labor Rate Variance
Labor Efficiency Variance
Overhead Volume Variance
Explanation - Labor Rate Variance occurs when the actual hourly rate differs from the standard rate.
Correct answer is: Labor Rate Variance
Q.7 Material Usage Variance is also known as:
Material Price Variance
Material Efficiency Variance
Material Cost Variance
Material Quantity Adjustment
Explanation - Material Usage Variance measures the difference in quantity of material used versus the standard allowed.
Correct answer is: Material Efficiency Variance
Q.8 Fixed Overhead Volume Variance arises due to:
Change in actual fixed overhead costs
Difference between budgeted and applied production units
Inefficient labor usage
Higher material price
Explanation - Fixed Overhead Volume Variance is caused when actual production differs from the expected production used to apply fixed overhead.
Correct answer is: Difference between budgeted and applied production units
Q.9 Standard Costing helps management primarily by:
Recording historical costs
Providing cost control benchmarks
Eliminating taxes
Increasing revenue
Explanation - It provides predetermined standards against which actual performance can be measured for controlling costs.
Correct answer is: Providing cost control benchmarks
Q.10 Which of the following is a controllable variance?
Material Price Variance
Fixed Overhead Volume Variance
Depreciation Variance
Interest Variance
Explanation - Material Price Variance can be influenced by purchasing decisions, making it controllable by management.
Correct answer is: Material Price Variance
Q.11 What is the formula for Labor Rate Variance?
(Standard Rate - Actual Rate) × Standard Hours
(Actual Rate - Standard Rate) × Actual Hours
(Actual Rate - Standard Rate) × Standard Hours
(Standard Rate - Actual Rate) × Actual Hours
Explanation - Labor Rate Variance focuses on the difference in wage rate multiplied by actual hours worked.
Correct answer is: (Standard Rate - Actual Rate) × Actual Hours
Q.12 Overhead Spending Variance measures:
Difference between actual overhead incurred and standard overhead allowed
Difference between fixed and variable overhead
Difference between budgeted and actual sales
Difference between labor hours and material cost
Explanation - It shows whether overhead costs are higher or lower than expected for the actual level of activity.
Correct answer is: Difference between actual overhead incurred and standard overhead allowed
Q.13 Which variance analysis compares actual cost against standard cost?
Financial Accounting
Variance Analysis
Budgeting
Cash Flow Analysis
Explanation - Variance analysis specifically identifies differences between actual and standard costs to highlight inefficiencies.
Correct answer is: Variance Analysis
Q.14 Material Mix Variance arises when:
Actual prices differ from standard prices
Different quantities of materials are used than planned
The mix of materials used differs from the standard mix
Labor hours are less than standard
Explanation - Material Mix Variance occurs when the proportions of materials used deviate from standard, affecting costs.
Correct answer is: The mix of materials used differs from the standard mix
Q.15 A labor efficiency variance of zero indicates:
Labor rate equals standard rate
Actual hours worked match standard hours allowed
Total labor cost is zero
Production has decreased
Explanation - Zero labor efficiency variance means no difference between actual hours and standard hours for production achieved.
Correct answer is: Actual hours worked match standard hours allowed
Q.16 Which of the following is considered an uncontrollable variance?
Material Price Variance
Labor Efficiency Variance
Fixed Overhead Volume Variance
Direct Material Usage Variance
Explanation - Volume variance depends on production levels, which cannot always be controlled by management decisions.
Correct answer is: Fixed Overhead Volume Variance
Q.17 Standard Costing simplifies cost control because it:
Records all actual costs immediately
Uses predetermined cost benchmarks
Eliminates the need for budgets
Focuses only on revenue generation
Explanation - By comparing actual costs to standard costs, management can quickly identify inefficiencies.
Correct answer is: Uses predetermined cost benchmarks
Q.18 What is the key purpose of variance analysis in management accounting?
To calculate profit
To control costs and assess performance
To audit financial statements
To determine market trends
Explanation - Variance analysis highlights areas of over or under-spending, aiding management decisions.
Correct answer is: To control costs and assess performance
Q.19 Overhead Efficiency Variance measures:
Difference in actual vs standard overhead rate
Effect of idle time and efficiency on variable overhead
Total fixed overhead spent
Difference between actual and budgeted sales
Explanation - It shows how efficiently overhead resources are utilized in production compared to standards.
Correct answer is: Effect of idle time and efficiency on variable overhead
Q.20 What is the formula for Material Usage Variance?
(Standard Quantity - Actual Quantity) × Standard Price
(Actual Quantity - Standard Quantity) × Standard Price
(Actual Price - Standard Price) × Actual Quantity
(Standard Price - Actual Price) × Actual Quantity
Explanation - Material Usage Variance measures the cost impact of using more or less material than the standard allowance.
Correct answer is: (Standard Quantity - Actual Quantity) × Standard Price
Q.21 Which of the following is TRUE about favorable and adverse variances?
Favorable always means higher cost, adverse lower cost
Favorable reduces cost, adverse increases cost
Both favorable and adverse increase cost
Both favorable and adverse reduce cost
Explanation - Favorable variance is when actual cost is lower than standard; adverse is when actual cost exceeds standard.
Correct answer is: Favorable reduces cost, adverse increases cost
Q.22 Standard cost for labor per unit is calculated by:
Standard rate × Standard hours per unit
Actual rate × Actual hours
Actual rate × Standard hours
Standard rate × Actual hours
Explanation - It provides a benchmark to measure actual labor cost per unit of output.
Correct answer is: Standard rate × Standard hours per unit
Q.23 Which statement best defines a 'variance' in management accounting?
Difference between budgeted revenue and actual revenue
Difference between actual cost and standard cost
Difference between assets and liabilities
Difference between cash inflow and outflow
Explanation - A variance quantifies how far actual performance deviates from standard or expected costs.
Correct answer is: Difference between actual cost and standard cost
Q.24 Material Yield Variance arises due to:
Price fluctuation of materials
Difference between actual output and expected output from given material
Labor inefficiency
Overhead allocation
Explanation - Material Yield Variance measures the efficiency of converting materials into finished goods.
Correct answer is: Difference between actual output and expected output from given material
Q.25 Which of the following is a major benefit of standard costing?
It eliminates the need for financial records
It provides a basis for cost control and decision-making
It increases production automatically
It guarantees favorable variances
Explanation - Standard costing helps management plan and control costs, and supports decision-making.
Correct answer is: It provides a basis for cost control and decision-making