Management Accounting Flashcards

A favourable direct material price variance means:

Answer: The actual price paid was less than the standard price

Direct material price variance = (Standard price − Actual price) × Actual quantity. Favourable means actual price < standard price, so less was paid than expected.

Which of the following would cause an adverse direct labour efficiency variance?

Answer: More hours were worked than standard to produce the output

Labour efficiency variance = (Standard hours − Actual hours) × Standard rate. If actual hours exceed standard hours, the variance is adverse (more time taken than expected).

Activity-based costing (ABC) differs from traditional absorption costing because it:

Answer: Uses multiple cost drivers to allocate overhead more accurately to products

ABC uses multiple cost drivers (e.g., number of set-ups, machine hours, orders processed) to allocate overhead to products more accurately than a single volume-based OAR.

In a standard costing system, a 'standard hour' represents:

Answer: The time a task should take under efficient operating conditions

A standard hour is the amount of work that should be performed in one hour under efficient (standard) operating conditions, used as the basis for efficiency variances.

Which of the following best describes a 'cost centre'?

Answer: A unit of the business that is charged with costs only, with no revenue responsibility

A cost centre is a business unit accountable only for the costs it incurs; it has no direct revenue responsibility. Examples include HR and maintenance departments.

The margin of safety expresses:

Answer: The difference between budgeted sales and break-even sales, as a percentage of budgeted sales

Margin of safety = (Budgeted sales − Break-even sales) ÷ Budgeted sales × 100. It shows how much sales can fall before the business makes a loss.