Management Accounting: Budgeting & Evaluation Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Management Accounting: Budgeting & Evaluation flashcards as text
In a production budget, the quantity to be produced is calculated as:
Answer: Sales volume plus required closing inventory minus opening inventory
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.
The sales volume variance (in standard costing) is calculated as:
Answer: (Actual volume − Budgeted volume) × Standard profit per unit
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).
The direct materials price variance is:
Answer: (Standard price − Actual price) × Actual quantity purchased
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.
Adverse direct labour efficiency variance arises when:
Answer: Workers take longer than the standard hours for actual production
Labour efficiency variance = (Standard hours for actual output − Actual hours) × Standard rate. Adverse means actual hours exceeded standard hours — workers were slower than expected.
The fixed overhead volume variance is caused by:
Answer: Actual production volume differing from budgeted volume, affecting overhead absorption
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.
Which variance investigates the difference between budgeted and actual fixed overhead expenditure?
Answer: Fixed overhead expenditure (spending) variance
Fixed overhead expenditure variance = Budgeted fixed overhead − Actual fixed overhead. It isolates whether the business spent more or less on fixed overheads than budgeted, independent of activity.