AAT L4 Management Accounting: Budgeting & Evaluation 2

Question 1

In a production budget, the quantity to be produced is calculated as:

Accepted Answer

Sales volume plus required closing inventory minus opening inventory

Answer

Production required = Sales volume + Closing inventory target − Opening inventory. The production budget ensures enough units are manufactured to meet sales demand and build up (or run down) inventory as planned.

Question 2

The sales volume variance (in standard costing) is calculated as:

Accepted Answer

(Actual volume − Budgeted volume) × Standard profit per unit

Answer

Sales volume variance measures the effect of selling a different number of units than budgeted, valued at standard profit per unit (or standard contribution per unit under marginal costing).

Question 3

The direct materials price variance is:

Accepted Answer

(Standard price − Actual price) × Actual quantity purchased

Answer

Materials price variance = (Standard price − Actual price) × Actual quantity. A favourable variance means the actual price paid was less than standard; adverse means it was more.

Question 4

Adverse direct labour efficiency variance arises when:

Accepted Answer

Workers take longer than the standard hours for actual production

Answer

Labour efficiency variance = (Standard hours for actual output − Actual hours) × Standard rate. Adverse means actual hours exceeded standard hours — workers were slower than expected.

Question 5

The fixed overhead volume variance is caused by:

Accepted Answer

Actual production volume differing from budgeted volume, affecting overhead absorption

Answer

Fixed overhead volume variance arises because actual production volume differs from budgeted volume; since the OAR is calculated on budgeted volume, more or less overhead is absorbed than budgeted.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Management Accounting: Budgeting & Evaluation 2