CIA Managerial Accounting 2 — Questions and Answers
Question 1: A company purchased 5,000 lbs of material at $4.20 per lb; the standard price is $4.00 per lb. What is the materials price variance (computed at purchase)?
- $1,200 unfavorable
- $1,000 favorable
- $1,000 unfavorable (Correct answer)
- $800 unfavorable
Correct answer: $1,000 unfavorable
Price variance = 5,000 x ($4.20 - $4.00) = $1,000, unfavorable because actual price exceeded standard.
Question 2: Standard hours allowed for actual output were 2,000, actual hours worked were 2,100, and the standard labor rate is $15 per hour. What is the labor efficiency variance?
- $1,500 favorable
- $1,575 unfavorable
- $3,000 unfavorable
- $1,500 unfavorable (Correct answer)
Correct answer: $1,500 unfavorable
Efficiency variance = (2,100 - 2,000) x $15 = $1,500 unfavorable since more hours were used than allowed.
Question 3: The fixed overhead volume variance is best described as the difference between:
- Actual fixed overhead and budgeted fixed overhead
- Budgeted fixed overhead and fixed overhead applied to production (Correct answer)
- Applied variable overhead and applied fixed overhead
- Actual fixed overhead and applied fixed overhead
Correct answer: Budgeted fixed overhead and fixed overhead applied to production
The volume variance arises when actual output differs from the denominator activity used to set the fixed overhead rate.
Question 4: A flexible budget is most useful for performance evaluation because it:
- Is updated continuously by adding a new month as one ends
- Excludes all fixed costs from the comparison
- Adjusts budgeted costs to the actual level of activity achieved (Correct answer)
- Is prepared for a single, fixed level of activity
Correct answer: Adjusts budgeted costs to the actual level of activity achieved
Comparing actual costs to a budget at the same activity level isolates spending and efficiency differences.
Question 5: The sales volume variance measures the difference between:
- Actual sales price and budgeted sales price
- The flexible budget and the static (master) budget (Correct answer)
- Actual results and the flexible budget
- Actual costs and standard costs for actual output
Correct answer: The flexible budget and the static (master) budget
Sales volume variance captures the profit effect of selling a different quantity than originally planned.
Question 6: Which manager is generally held most responsible for an unfavorable materials price variance?
- Sales manager
- Controller
- Purchasing manager (Correct answer)
- Production supervisor
Correct answer: Purchasing manager
The purchasing function controls the price paid for materials.
Question 7: Actual variable overhead was $22,000 for 4,000 actual direct labor hours; the standard variable overhead rate is $5 per hour. What is the variable overhead spending variance?
- $2,000 favorable
- $0
- $5,000 unfavorable
- $2,000 unfavorable (Correct answer)
Correct answer: $2,000 unfavorable
Spending variance = $22,000 - (4,000 x $5) = $2,000 unfavorable.
