ACCA AK Management Accounting (MA) Standard Costing and Variance Analysis 1 — Questions and Answers
Question 1: What is a standard cost?
- The actual cost incurred during production
- A predetermined cost for a unit of output based on expected conditions (Correct answer)
- The historical average cost calculated over the past year
- The lowest possible cost achievable under perfect conditions
Correct answer: A predetermined cost for a unit of output based on expected conditions
A standard cost is a predetermined cost calculated in advance of production, based on expected levels of efficiency and prices.
Question 2: Which type of standard assumes perfect operating conditions with no wastage or inefficiency?
- Basic standard
- Current standard
- Attainable standard
- Ideal standard (Correct answer)
Correct answer: Ideal standard
Ideal standards assume perfect conditions with no waste, idle time, or inefficiency, making them rarely achievable in practice.
Question 3: The direct material price variance measures the difference between:
- The standard quantity and actual quantity of material used
- The standard price and actual price paid for the actual quantity purchased (Correct answer)
- The budgeted cost and actual cost of materials for budgeted production
- The standard cost and actual cost for the standard quantity
Correct answer: The standard price and actual price paid for the actual quantity purchased
Material price variance = (Standard price – Actual price) × Actual quantity purchased, isolating the effect of price differences on cost.
Question 4: A company has a standard material usage of 5 kg per unit at £3/kg. Actual production was 100 units using 520 kg. What is the material usage variance?
- £60 adverse (Correct answer)
- £60 favourable
- £156 adverse
- £156 favourable
Correct answer: £60 adverse
Standard quantity for actual output = 100 × 5 = 500 kg; variance = (500 – 520) × £3 = £60 adverse.
Question 5: The direct labour rate variance is calculated as:
- (Standard hours – Actual hours) × Standard rate
- (Standard rate – Actual rate) × Actual hours worked (Correct answer)
- (Standard hours – Actual hours) × Actual rate
- (Standard rate – Actual rate) × Standard hours
Correct answer: (Standard rate – Actual rate) × Actual hours worked
Labour rate variance = (Standard rate – Actual rate) × Actual hours worked, measuring the cost impact of paying more or less per hour than standard.
Question 6: If workers complete actual output in fewer hours than the standard allows, the direct labour efficiency variance will be:
- Adverse, as actual hours were less than budgeted hours
- Favourable, as fewer hours were used than the standard allows (Correct answer)
- Nil, because time savings have no monetary effect
- Adverse, because any deviation from standard is unfavourable
Correct answer: Favourable, as fewer hours were used than the standard allows
Labour efficiency variance = (Standard hours – Actual hours) × Standard rate; when actual hours are less than standard hours allowed, the variance is favourable.
Question 7: An adverse variance indicates that:
- Actual performance was better than standard
- The standard was set at an unrealistically high level
- Actual costs were higher or actual revenues were lower than standard (Correct answer)
- The budget was exceeded solely due to uncontrollable external factors
Correct answer: Actual costs were higher or actual revenues were lower than standard
An adverse variance means actual costs exceeded standard costs or actual revenue fell below standard, both of which reduce profit.
