ACCA AK Management Accounting (MA) Standard Costing and Variance Analysis 2 — Questions and Answers
Question 1: The fixed overhead expenditure variance compares:
- Actual fixed overheads with absorbed fixed overheads
- Budgeted fixed overheads with actual fixed overheads (Correct answer)
- Standard fixed overheads per unit with variable overheads per unit
- Absorbed overheads with the budgeted production volume
Correct answer: Budgeted fixed overheads with actual fixed overheads
Fixed overhead expenditure variance = Budgeted fixed overheads – Actual fixed overheads, showing whether spending on fixed costs was more or less than planned.
Question 2: A company budgets to produce 1,000 units with fixed overheads of £5,000. Actual production is 900 units and actual fixed overheads are £5,000. What is the fixed overhead volume variance?
- £500 favourable
- £500 adverse (Correct answer)
- £4,500 favourable
- Nil, as actual fixed overheads equal the budget
Correct answer: £500 adverse
Volume variance = (Actual production – Budgeted production) × Standard rate = (900 – 1,000) × £5 = £500 adverse, as fixed overheads are under-absorbed.
Question 3: The fixed overhead capacity variance measures:
- The difference between actual and standard fixed overhead rates per unit
- The difference between actual hours worked and budgeted hours, valued at the standard rate (Correct answer)
- The difference between standard hours for actual output and actual hours worked
- The difference between actual fixed overheads and absorbed fixed overheads
Correct answer: The difference between actual hours worked and budgeted hours, valued at the standard rate
Capacity variance = (Actual hours worked – Budgeted hours) × Standard fixed overhead rate per hour, reflecting whether the workforce was active for more or fewer hours than budgeted.
Question 4: The variable overhead efficiency variance is most similar in structure to:
- The fixed overhead volume variance
- The direct labour efficiency variance (Correct answer)
- The direct material price variance
- The sales price variance
Correct answer: The direct labour efficiency variance
Both the variable overhead efficiency variance and the labour efficiency variance are driven by the difference between standard and actual hours, valued at the respective standard rate per hour.
Question 5: A company has a standard selling price of £40 per unit. Actual sales were 500 units at £38 per unit. What is the sales price variance?
- £1,000 adverse (Correct answer)
- £1,000 favourable
- £500 adverse
- £2,000 adverse
Correct answer: £1,000 adverse
Sales price variance = (Standard price – Actual price) × Actual units sold = (£40 – £38) × 500 = £1,000 adverse.
Question 6: Under marginal costing, the sales volume variance is valued using:
- Standard selling price per unit
- Standard profit per unit
- Standard contribution per unit (Correct answer)
- Actual contribution per unit
Correct answer: Standard contribution per unit
Under marginal costing, sales volume variance = (Actual volume – Budgeted volume) × Standard contribution per unit, since fixed costs are treated as period costs.
Question 7: Which of the following would cause a favourable direct material price variance?
- Using a higher grade of material than specified in the standard
- Buying material at a lower price than the standard price (Correct answer)
- Using less material than the standard quantity allows
- Producing more units than budgeted during the period
Correct answer: Buying material at a lower price than the standard price
A favourable material price variance arises when the actual price paid per unit of material is less than the standard price.
ACCA AK Management Accounting (MA) Standard Costing and Variance Analysis 2
The fixed overhead expenditure variance compares: