What is variance analysis primarily used for? A) Predicting future sales
B) Comparing actual performance against budgeted performance
C) Managing cash flow
D) Assessing market conditions
Answer: B
Which variance measures the difference between actual cost and standard cost due to the quantity of materials used? A) Material price variance
B) Material usage variance
C) Labor efficiency variance
D) Overhead variance
Answer: B
Which variance is calculated as (Actual Quantity – Standard Quantity) x Standard Price? A) Material price variance
B) Material usage variance
C) Labor rate variance
D) Sales volume variance
Answer: B
Which of the following is a favorable variance? A) Actual revenue is less than budgeted revenue
B) Actual cost is greater than budgeted cost
C) Actual revenue is greater than budgeted revenue
D) Actual cost is greater than actual revenue
Answer: C
What is the primary purpose of variance analysis in cost accounting? A) To prepare financial statements
B) To analyze profitability
C) To control costs and improve efficiency
D) To determine tax liability
Answer: C
What does a favorable material price variance indicate? A) Material was purchased at a higher price than standard
B) Material was used more efficiently than expected
C) Material was purchased at a lower price than standard
D) More material was used than expected
Answer: C
Which variance arises due to the difference between the actual price paid for materials and the standard price? A) Material usage variance
B) Material price variance
C) Labor efficiency variance
D) Overhead variance
Answer: B
If the standard cost for material is $10 per unit and the actual cost is $12 per unit for 100 units, what is the material price variance? A) $200 unfavorable
B) $200 favorable
C) $100 unfavorable
D) $100 favorable
Answer: A
Which variance would be most affected by a decrease in the quality of materials purchased? A) Material usage variance
B) Material price variance
C) Labor rate variance
D) Sales volume variance
Answer: A
A favorable material usage variance indicates that: A) Less material was used than expected
B) More material was used than expected
C) Material was purchased at a higher price than standard
D) Material was purchased at a lower price than standard
Answer: A
What does the labor rate variance measure? A) Efficiency of labor
B) Difference between actual and standard labor hours
C) Difference between actual and standard labor rates
D) Total cost of labor
Answer: C
If the standard labor rate is $20 per hour and the actual labor rate is $18 per hour for 200 hours, what is the labor rate variance? A) $400 favorable
B) $400 unfavorable
C) $200 favorable
D) $200 unfavorable
Answer: A
Which variance arises due to the difference between the actual hours worked and the standard hours allowed? A) Labor rate variance
B) Labor efficiency variance
C) Material price variance
D) Overhead variance
Answer: B
A favorable labor efficiency variance indicates that: A) Workers were paid less than the standard rate
B) Workers were more efficient than expected
C) More labor hours were used than expected
D) Workers were less efficient than expected
Answer: B
What does an unfavorable labor rate variance indicate? A) Workers were paid less than the standard rate
B) Workers were paid more than the standard rate
C) More labor hours were used than expected
D) Fewer labor hours were used than expected
Answer: B
Which variance is calculated as (Actual Overhead – Applied Overhead)? A) Variable overhead spending variance
B) Variable overhead efficiency variance
C) Fixed overhead spending variance
D) Overhead volume variance
Answer: D
What does a favorable variable overhead efficiency variance indicate? A) Overhead costs were lower than expected
B) Overhead costs were higher than expected
C) Actual activity level was higher than the budgeted level
D) Actual activity level was lower than the budgeted level
Answer: A
Which variance arises from the difference between actual fixed overhead and budgeted fixed overhead? A) Variable overhead efficiency variance
B) Fixed overhead volume variance
C) Fixed overhead spending variance
D) Variable overhead spending variance
Answer: C
A favorable fixed overhead volume variance indicates that: A) More units were produced than expected
B) Fewer units were produced than expected
C) Actual fixed overhead was higher than budgeted
D) Actual fixed overhead was lower than budgeted
Answer: A
Which variance would be most affected by a decrease in machine efficiency? A) Variable overhead efficiency variance
B) Variable overhead spending variance
C) Fixed overhead spending variance
D) Material price variance
Answer: A
Which variance measures the difference between actual sales revenue and budgeted sales revenue? A) Sales price variance
B) Sales volume variance
C) Material usage variance
D) Labor efficiency variance
Answer: A
If the actual selling price is $15 per unit and the standard selling price is $12 per unit for 1,000 units, what is the sales price variance? A) $3,000 favorable
B) $3,000 unfavorable
C) $1,500 favorable
D) $1,500 unfavorable
Answer: A
What does an unfavorable sales volume variance indicate? A) More units were sold than expected
B) Fewer units were sold than expected
C) Selling price was higher than expected
D) Selling price was lower than expected
Answer: B
A favorable sales price variance indicates that: A) Actual selling price was higher than standard
B) Actual selling price was lower than standard
C) More units were sold than expected
D) Fewer units were sold than expected
Answer: A
Which variance would be most affected by an increase in customer demand? A) Sales volume variance
B) Sales price variance
C) Material usage variance
D) Labor rate variance
Answer: A
Which variance analysis technique is used to assess the impact of multiple variances on overall performance? A) Trend analysis
B) Regression analysis
C) Variance decomposition
D) Sensitivity analysis
Answer: C
What does the term “standard cost” refer to in variance analysis? A) Actual cost incurred
B) Predetermined cost based on expected performance
C) Average cost over a period
D) Maximum allowable cost
Answer: B
Which variance would be most affected by changes in production technology? A) Labor efficiency variance
B) Material price variance
C) Sales volume variance
D) Fixed overhead volume variance
Answer: A
What does a zero variance indicate? A) Actual performance was better than budgeted
B) Actual performance was worse than budgeted
C) Actual performance was exactly as budgeted
D) Variance analysis is not applicable
Answer: C
Which of the following is not a type of variance in standard costing? A) Material variance
B) Labor variance
C) Overhead variance
D) Cash variance
Answer: D
What should a manager do if a significant unfavorable variance is identified? A) Ignore the variance
B) Investigate the cause of the variance
C) Increase the budget
D) Report it as a loss
Answer: B
Which of the following is a possible cause of a favorable labor efficiency variance? A) Poor worker performance
B) Use of outdated machinery
C) Improved worker training
D) Higher labor rates
Answer: C
What might a favorable material usage variance indicate about the production process? A) Excessive material waste
B) Inefficient use of materials
C) Efficient use of materials
D) Higher material costs
Answer: C
If actual sales volume is lower than budgeted, which variance is likely to be unfavorable? A) Sales price variance
B) Sales volume variance
C) Material usage variance
D) Labor rate variance
Answer: B
What does an unfavorable overhead variance suggest about a company’s overhead costs? A) Overhead costs were higher than expected
B) Overhead costs were lower than expected
C) Overhead costs matched expectations
D) Overhead costs were irrelevant
Answer: A
Which variance would be most directly impacted by a change in supplier pricing? A) Material price variance
B) Material usage variance
C) Labor rate variance
D) Overhead variance
Answer: A
In variance analysis, what is the main focus when analyzing direct labor variances? A) Material costs
B) Labor efficiency and rates
C) Overhead allocation
D) Sales performance
Answer: B
Which variance is analyzed to understand the impact of production volume changes on fixed overhead costs? A) Fixed overhead volume variance
B) Fixed overhead spending variance
C) Variable overhead efficiency variance
D) Material usage variance
Answer: A
What is the primary benefit of conducting variance analysis regularly? A) Ensuring compliance with tax regulations
B) Identifying areas for cost control and performance improvement
C) Preparing accurate financial statements
D) Enhancing sales forecasting accuracy
Answer: B
Which of the following is least likely to cause a variance in sales price? A) Changes in market conditions
B) Changes in customer preferences
C) Changes in supplier costs
D) Changes in competitor pricing
Answer: C
If a company experiences a favorable sales volume variance, what might be a contributing factor? A) Increased market demand
B) Decreased production efficiency
C) Increased labor costs
D) Higher material costs
Answer: A
An unfavorable material price variance could be caused by: A) Negotiating lower prices with suppliers
B) Increased competition for raw materials
C) More efficient use of materials
D) Lower quality materials
Answer: B
Which variance analysis would be most helpful in identifying the financial impact of a new production process? A) Material price variance
B) Labor efficiency variance
C) Overhead spending variance
D) Sales price variance
Answer: B
What action should management take if they discover a significant favorable variance? A) Ignore it, as favorable variances are always good
B) Investigate the cause to understand if it can be replicated
C) Reduce the budget for the next period
D) Increase production to leverage the favorable variance
Answer: B
A company implemented a cost-saving initiative. Which variance would most likely reflect the success of this initiative? A) Sales volume variance
B) Material price variance
C) Labor rate variance
D) Overhead efficiency variance
Answer: D
Which variance would be most impacted by an increase in employee training programs? A) Material price variance
B) Material usage variance
C) Labor efficiency variance
D) Overhead spending variance
Answer: C
If a company switches to a cheaper material without changing the standard, what is the likely outcome? A) Favorable material usage variance
B) Unfavorable material usage variance
C) Favorable material price variance
D) Unfavorable material price variance
Answer: C
Which variance would be affected by a decrease in the number of defective products produced? A) Material price variance
B) Labor rate variance
C) Material usage variance
D) Overhead spending variance
Answer: C
How can a company reduce an unfavorable labor efficiency variance? A) Increase material prices
B) Improve worker training and processes
C) Decrease the standard labor rate
D) Increase the standard labor hours
Answer: B
If the standard cost system is not updated regularly, which variance is most likely to be affected? A) Material price variance
B) Labor efficiency variance
C) Sales price variance
D) Overhead spending variance
Answer: A