1.

BUDGETING AND BUDGETARY CONTROL

MCQ’S:
1. Which of the following is / are true with regard to the period of budget?
(I) The budget period depends on the nature of industry
(ii) Master budget is prepared annually, while functional budgets may be for different periods
(iii) Basic budget is the long-term budget
(a) Only (I) above
(b) Only (ii) above
(c) Both (I) and (II) above
(d) All (I), (ii) and (iii) above

2.Which of the following statements is / are true with regard to flexible budgeting?
(a) It is a system of budgeting under which budgets are recast quickly for changes in the volume
of activity.
(b) It involves a careful differentiation between fixed and variable expenses.
(c) A flexible budget is one which changes from year to year.
(d) Both (a) and (b) above

3. The classification of fixed and variable cost has a special significance in the preparation of
(a) Flexible budget
(b) Cash budget
(c) Capital budget
(d) Zero-based budget

4. When a flexible budget is used, then increase in the actual production level within a relevant
range would increase
(a) Total cost
(b) Variable cost
(c) Fixed cost
(d) Both (a) and (b) above

5. When a flexible budget is used, a decrease in the actual production level within a relevant range
would
(a) Decrease variable cost per unit
(b) Decrease variable costs
(c) Increase total fixed costs
(d) Increase variable cost per unit

6. If the activity level is reduced from 80% to 70%, the fixed cost
(a) will decrease by 10%
(b) will increase by 10%
(c) per unit will decrease
(d) per unit will increase

7. Which of the following are purposes of a budget?

(I) Establishing strategic options (ii) Motivating management
(iii) Establishing long term objectives (iv) planning operations
(a) (I) and (iii) only
(b) (I) and (iv). only
 (c) (ii) and (iv) only
(d) (ii), (iii) and (iv) only

8. Which of the information below should be contained in a budget manual?

(a) An organisation charts
(b) Timetable for budget preparation
(c) A list of account codes
(d) All (a), (b) and (c)

9. A budget that gives a summary of all the functional budgets is known as

(a) Capital budget
(b) Flexible budget
(c) Master budget
(d) Fixed budgets

10. A master budget comprises

(a) The budgeted profit and loss account
(b) Budgeted cash flow, budgeted profit and loss, budgeted balance sheet
(c) Budgeted cash flow
(d) Entire sets of budgets prepared

11. A master budget comprises the

(a) budgeted the income statement and budgeted cash flow only
(b) budgeted income statement and the budgeted balance sheet only
(c) budgeted income statement and budgeted capital expenditure only
(d) budgeted income statement, budgeted balance sheet and budgeted cash flow only

12. Which of the following is normally the most appropriate sequence of events in the preparation
often indicated budgets?
(a) Sales budget, cash budget, budgeted the balance sheet, production budget
(b) Sales budget, cash budget, production budget, budgeted the balance sheet
(c) Sales budget, production budget, cash budget, budgeted the balance sheet
(d) Sales budget, production budget, budgeted the balance sheet, cash budget

13. When preparing a production budget, the quantity to be produced equals

(a) Sates quantity + opening stock + closing stock
(b) Sales quantity opening stock + closing stock
(c) Sales quantity-opening stock-closing stock
(d) Sales quantity + opening stock-closing stock

14. Which one of the following items would NOT be included in a cash budget?
(a) Capitals repayments on loans
(b) Depreciation charges
(c) Dividend payment
(d) Proceeds of the sale of fixed assets

FILL UPS:
1. budget is calculated from the desired ending inventory and the sales forecast.
2. Is a Financial and/or quantitative statement, prepared and approved prior to a defined
period of time, of the policy to be pursued during that period for the purpose of attaining a given
objective."

3. Budget is a Budget of income or expenditure appropriate to, or the responsibility of, a

particular function. "

4. CIMA has defined a Budget as-"The summary Budget incorporating its component
functional Budgets. "

5. CIMA had defined a Budget as-"A Budget which is designed to remain unchanged
irrespective of the level of capacity or volume. ‘’

6. CIMA has defined Budget as-"A budget which, by recognising the difference between fixed,
semi-fixed and variable costs, is designed to change in relation to the level of activity attained. "

7. CIMA has defined a Budget as-"A section of the organisation of an undertaking defined for
the purpose of Budgetary Control. "

8. CIMA has defined a Factor as-"the factor the extent of whose influence must first be
assessed in order to ensure that the functional Budgets are reasonably capable of fulfilment.'

9. CIMA has defined Budget as-"A document which sets out the responsibilities of the
persons engaged in, the routine of, and the forms and records required for, Budgetary control.'

10. CIMA has defined Factor as-"A factor which at any time or over a period, may limit the
activity of an entity, often one where there is the shortage or difficulty of supply."

11. CIMA has defined a Budget as-"The summary Budget incorporating its component
functional Budgets."

TRUE OR FALSE:
1. A Financial statement, prepared and approved prior to a defined period of time is known as
interim financial statement.

2. Master Budget is a Budget which is designed to remain unchanged irrespective of the level of
capacity.

3. Flexible Budget is the summary Budget incorporating its component functional Budgets.

4 Functional Budget is a budget which, by recognising the difference between fixed, semi-fixed

5. current Budget is a Budget which is established for use unaltered over a long period of time.

6. Functional Budget is a Budget which is established for use over a short period of time.

7. Fixed Budget refers to budget for fixed assets.

8. The process of creating a formal plan and translating goals into a quantitative format is process
costing.

9. Budget is a statement of the policy to be pursued for the purpose pursued for the purpose of
attaining a given objective.

10. Flexible budgeting is a system of Budgeting under which budgets are recast quickly for changes in
the volume of activity.

11. Flexible budgeting involves a careful differentiation between fixed and variable expenses.

12. A flexible budget is a budget which, by recognising different cost behaviour patterns, is designed
to change as a volume of activity changes.

13. A flexible budget is a budget which is prepared for a rolling period which is reviewed monthly
and updated accordingly.

14. A flexible budget is a budget for semi-variable overhead costs only.

15. The basic difference between a fixed budget and a flexible budget is that a fixed budget is a
budget for a single level of an activity, while a flexible budget consists of several budgets based on
different activity levels.

16. A master budget comprises the budgeted income statement, budgeted balance sheet and
budgeted cash flow only.

17. Sales budget provides the necessary input data for the Direct Labour Budget.18. The zero-based
budget forces management to rethink each phase of an organization's operations before allocating
resources.

MATCH THE FOLLOWING:

1. Sales Budget a. Flexible Budget

2. Summary of all Functional Budgets b. Current Budget
3. Budget which is designed to remain c. Key Factor
unchanged irrespective of the level of
capacity
4. Budget which is designed to change in d. Functional Budget
relation to the level of activity attained

5. Budget which is established for use e. Principal factor

unaltered over a long period of time
6. Budget which is established to use over f. Master Budget
a short period of time
7. The factor the extent of whose g. Budget Centre
influence must first be assessed in
order to ensure that the functional
Budgets are reasonably capable of
fulfilment
 8. A factor which at any time or over a h. Budget Manual
period may limit the activity of an
entity often one where there is
shortage or difficulty of supply
9. A section of an organisation of an I. Basic Budget
undertaking defined for the purpose of
Budgetary Control
10. A document which sets out j. Fixed Budget
responsibilities of the person engaged
in the routine of and the forms and
records required for Budgetary Control

2. ABSORBTION COSTING, MARGINAL COSTING and

CVP ANALYSIS
MCQS:
1. What distinguishes absorption costing from marginal costing?
(a) Product cost include both and production overheads
(b) Product cost include both production cost and non-production cost
(c) stock valuation includes a share of all production cost
(d) stock valuation includes a share of all cost

2.The Marginal Cost Statement

(a) shows the gross profit
(b) is sent to the shareholders
(c) shows the classification of costs as direct and indirect
(d) can be used to predict future profits at different levels of activity

3. CVP analysis requires costs to be categorized as

(a) fixed or variable
(b) direct or indirect
(c) product or period
(d) standard or actual

4. Contribution equals:
(a) Sales minus cost of sales
(b) Sales minus cost of production
(c) Sales minus variable costs
(d) Sales minus fixed cost

5. Contribution is equal to
(a) Fixed cost + profit
(b) Sales-variable cost
(c) Fixed cost-loss
(d) All the above

6. Which of the following costs is not deducted from sales revenue in computation of contribution?
(a) Direct materials
(b) Direct labour
(c) Fixed factory overheads
(d) variable selling overheads

7. The selling price per unit less the variable cost per unit is the:
(a) Fixed cost per unit
(b)Gross profit per unit
(c) Operating profit per unit
(d) Contribution per unit

8. If contribution margin increases by 12 per unit, then operating profits will

(a) also increase by 2 per unit
(b) increase by less than t 2 per unit
(c) decrease by if 2 per unit
(d) cannot say

9. PN ratio is equal to
(a) Profit /volume
(b) Contribution/sales
(c) Profit/contribution
(d) Profit/sales

10. Profit-volume ratio is improved by reducing

(a) Variable cost
(b) Fixed cost(c) Both of them
(d) None of them

11. At the break-even point which equation will be True

(a) variable cost-fixed cost = contribution
(b) Sales-variable cost + fixed cost
(c) sales-fixed cost = contribution
(d) Sales-contribution-variable cost

12. The break-even point in unit is equal to

(a) Fixed cost/PV ratio
(b) Fixed cost x sales/total contribution
(c) Fixed cost/contribution per unit
(d) Fixed cos/total contribution

13. When fixed cost increases, the break-even point

(a) Increases
(b) Decreases
(c) No effect
(d) Can't say

14. When variable cost decreases, then break-even point

(a) Increases
(b) Decreases
(c) No effect
(d) Can't say
15. When selling price decreases, then break-even point
(a) Increases
(b) Decreases
(c) No effect
(d) Can't say

16. When sales increases then break-even point

(a) Increases
(b) Decreases
(c) Remains constant
(d) None of these

17. Which of the following can improve break-even point?

(a) Increase in variable cost
(b) Increase in fixed cost
(c) Increase in sale price
(d) Increase in sales volume
(e) Increase in production volume

18. Which of the following describes the margin of safety?

(a) actual contribution margin achieved compared with that required to break-even
(b) actual sales compared with sales required to break-even
(c) actual versus budgeted net profit margin
(d) actual versus budgeted sales

19. Margin of safety is expressed as

(a) Profit / P/V ratio
(b) (Actual sales - sales of BEP)/ Actual sales
(c) Actual sales – Sales at BEP
(d)All of the above

20. Under which of the following cases the margin of safety decreases?
(a) Reduction in fixed cost
(b) Increase in variable cost
(c) Increase in the level of production or selling price or both
(d) Change in sales mix in order to increase the contribution
(e) Substitute the existing unprofitable product with the profitable ones

21. In the break-even chart, the margin of safety point lies

(a) To the left of break-even point
(b) To the right of break-even point
(c) On break-even point
(d) Can't say

22. Fixed cost is equal to

(a) Break-event sales x Margin of safety
(b) Sales x Margin of safety
(c) Sales x Profit-volume ratio
(d) Profit volume ratio x break-even sales
23. Which of the following factors is to be multiplied with contribution margin ratio to calculate
profit?
(a) Unit contribution margin
(b) Margin of safety
(c) Variable costs per unit
(d) Unit sales price
(e) Change in sales volume

24. In cost-volume-profit analysis, profit is equal to(a) Sales Revenue x PV ratio-Fixed cost
(b) sales units x contribution per unit-fixed costs
(c) Total contribution – fixed cost
(d) All of the above

25. The sales volume in the value required to earn the target profit, the formula is
(a) Target profit / Contribution per unit
(b) (Fixed cost + Target profit) x p/V ratio
(c) (Fixed cost + Target profit) / Contribution
(d) (Fixed cost + Target profit) / PV ratio

26. There is a reduction in the selling price. This will, other factors remaining same-
(a) increase contribution margin
(b) reduce fixed costs
(c) increase variable costs
(d) reduce operating income

27. There is an increase in advertising expenses. This will, other factors remaining same-
(a) reduce operating income
(b) reduce the contribution
(c) decrease selling Price
(d) increase variable costs

28. cost-volume-profit analysis is used PRIMARILY by management

(a) as a planning tool
(b) for control purposes
(c) to prepare external financial statements
(d) for correct financial results

29. The contribution to sales ratio of a company is 20% and profit is ₹ 64,500. If the total sales of the
company are ₹ 7,80,000, the fixed cost is
(a) ₹ 1,56,000
(b) ₹ 1,21,500
(c) ₹ 1,05,600
(d) ₹ 91,500
(e) ₹ 90,00

30. The total cost of manufacturing 4,000 units of a product is ₹ 4,50,000 which includes fixed costs
of ₹ 2,50,000. If the company desires to produce 5,000 units, then the total cost will be-
(a) ₹ 5, 27,778
(b) ₹ 5,20, 000
(c) ₹ 5,00,000
(d) ₹ 4,95, 000
(e) ₹ 4,83,500

31. The total cost of manufacturing 3,600 units of Product X is ₹ 81,000 which includes variable cos t
per unit of ₹ 15.00. If the company desires to produce 3 850 units, then the total cost would be
(a) ₹ 86,625
(b) ₹ 84,750
(c) ₹ 57,750
(d) ₹ 52,250
(e) ₹ 50,700

32. P Limited incurs fixed costs of ₹ 1,00, 000 per annum. The company manufactures a single
product and sells it for r 50 per unit. If the contribution to sales ratio is 40%, the break-even sales in
units are
(a) 5,000
(b) 6,000
(c) 6,500
(d) 7,000
(e) 7,500

33. A company manufacture a single product with a variable cost per unit of ₹ 22. The contribution
to sales ratio is 45%. Monthly fixed cost is ₹ 1,98,000. What is the break-even point in units?
(a) 4950
(b) 9,000
(c) 11,000
(d) 20,000

34. A Ltd. Manufactures and sells product 'B'. The sale price per unit of the product is ₹35. The
company will incur a loss ₹5.00 per unit if it sells 4,000 units: but if the volume is raised to 12,000
units, the company will make a profit of ₹4.50 per unit. The break-even point in units is
(a) 5,700
(b) 6,612
(C) 5,250
(d) 6,162

35. The profit-volume ratio and margin of safety ratio are 30% and 40% respectively. If the total sales
are ₹ 3,00,000, the profit of the firm is
(a) ₹ 54, 000
(b) ₹ 48, 000
(c) ₹ 36, 000
(d) ₹ 30,000

36. A company manufactures a single product which it sells for t 15 per unit. The product has a
contribution to sales ratio of 40%. The company's weekly break-even point is sales of ₹ 18,000. what
would be the profit in a week when 1,500 units are sold?
(a) ₹ 900
(b) ₹ 1,800
(c) ₹2,700
(d) ₹4,500
37. An organisation manufactures a single product. The total cost of making 4,000 units is ₹ 20,000
and the total cost of making 20,000 units is ₹ 40,000. within this range of activity, the total fixed cost
remains unchanged what is the variable cost per unit of the product
(a) ₹ 0.80
(b) ₹ 1.20
(c) ₹ 1.25
(d) ₹ 2.00

38. 5400 units of a company’s single product were sold for a total revenue of ₹ 1,40,400. Fixed cost
in the period were ₹ 39,420 and net profit was ₹ 11,880. What was the contribution per unit?
(a) ₹ 7.30
(b) ₹ 9.50
(C) ₹ 16.50
(d) ₹ 18.70

39. Sales are ₹ 3,20,000, fixed cost are ₹ 80,000 and variable cost are ₹1,20,000. What is the safety
margin?
(a) ₹ 18,900
(b) ₹ 20,000
(C) ₹ 1,92,000
(d) ₹ 1,28,000
(e) ₹ 1,31,000

40. An organisation manufactures a single product which has a variable cost of ₹ 36 per unit. The
organisation's total weekly fixed costs are ₹ 81,000 and it has a contribution to sales ratio of40%.
This week it plans to manufacture and sell 5,000units. What is the organisation's margin of safety in
units?
(a) 1,625
(b) 2,750
(C) 3,375
(d) 3,500

41. An organization's break-even point is 4,000 units at a sales price of if 5o per unit, variable cost of
₹30 per unit, and total fixed costs of ₹ 80,000. If the company sells 5oo additional units, by how
much will its profit Increase?
(a) ₹ 25,000
(C) ₹ 12,000
(b) ₹ 15,000
(e) ₹ 10,000
(d) ₹ 37,000

42. Banta Ltd. Manufactures product KDM. for last ten years. The company maintains a margin of
safety of 36% with an overall contribution to sales ratio of 35%. If fixed cost is I 8.4 lakhs, the Profit
of the company is
(a) ₹ 11,400 lakhs
(C) ₹ 4,725 lakhs
(b) ₹ 24,000 lakhs
(e) ₹ 8,644 lakhs
(d) ₹ 37,500 lakhs
43. A company wishes to make a profit of ₹ 1,50,000. It has fixed costs of ₹ 75,000 with a C/S ratio of
0.75 and a selling price of ₹ 10 per unit. How many units would the company need to sell in order to
achieve the required level of profit?
(a) 10,000 units
(b) 15,000 units
(c) 22,500 units
(d) 30,000 units

44. A company has a profit-volume ratio of 20%. To maintain the same contribution, by what
percentage (%) must sales be increased to offset 10% reduction in the selling price?
(a) 10
(b) 20
(c) 100
(d) 50
(e) 80

45. The following data is obtained from the records of the Plum Ltd.
Particulars First year (₹) Second year (₹)
Sales 1,28,000 1,44,000
Profit 16,000 22,400
The break-even sales of the company in rupees is
(a) ₹ 1,36,000
(b) ₹ 1,30,000
(c) ₹ 1,00,000
(d) ₹ 88,000
(e) ₹ 90,000

TRUE OR FALSE:
1. Marginal Costing is a method of costing.

2. Contract Costing is a technique of costing.

3. In Absorption costing Fixed as well as variable costs are charged to products.

4. Absorption costing ignores the cost-volume-profit Relationship.

5. Increase in price leads to a lower Margin of Safety.

6. In the break-even chart, Fixed cost Line will be a straight line parallel to the X axis.

7. A large angle of incidence in the break-even chart indicates higher rate of profit.

8. Contribution margin is also known as Gross profit.

9. If activity increases by 10% the semi-variable cost per unit will reduce in proportion to the
change in activity.

10. In Marginal Costing the price can be fixed on the basis of only Variable Costs.
11. If the selling price is below the total cost but above the marginal cost but the above marginal
cost contribution will lead to an over recovery of fixed expense.

12. If the product is sold at marginal cost, the loss will be equal to the variable expenses.

13. The effect of a price reduction is always to improve the P/V ratio.

14. The effect of a price reduction is always to lower the break-even point.

15. If the selling Price and the variable cost decline by the same amount the contribution per
unit will decrease.

16. To perform cost-volume-profit analysis, a company must be able to separate costs into fixed
and variable components.

17. In CVP analysis, variable costs include direct variable costs, but do not include indirect
variable costs.

18. If the selling price per unit is ₹ 20 and the contribution margin percentage is 30%, then the
variable cost per unit must be ₹ 6.

19. Total revenues less total fixed costs equal the contribution margin

20. Break-even point is that the quantity of output where total revenues equal total costs.

21. An increase in the tax rate will increase the break-even point.

22. If a company’s break-even sales is ₹ 100 and its sales is ₹125, then its margin of safety
percentage.

23. If the contribution margin decreases by ₹ 10 per unit, then operating profits will increase by
₹ 10 per unit.

24. If variable costs per unit increase, then the breakeven point will decrease.

25. If a company increases fixed costs, then the breakeven point will be lower.

26. Contribution margin and gross margin mean one and the same thing

27. Gross Profits will always be greater than contribution margin.

28. At the break-even point, variable expenses and fixed expenses are equal.

29. The contribution margin at the break-even point is zero.

30. Margin of Safety = Break-even Sales - Fixed cost

31. Margin of safety indicates profit

32. Sales below break-even point means profit.

 33. Contribution is always equal to fixed costs.

34. Margin of safety implies 'break-even point'.

35. A firm incurs a loss when contribution is equal to fixed cost.

36. A firm earns profit when contribution is equal to fixed costs

37. The variable cost ratio is 1-P/V ratio.

FILL UPS:
1. The price reduction policy, (increases/reduces) the P/V ratio and (increases/reduces)
the break-even point.

2. Costing, is defined by CIMA, as 'the ascertainment, by differentiating between fixed and

variable Costs, of marginal costs, and of the effect on profit of changes in the volume and type of
output.

3. Cost is the amount by which total costs change if the output is changed by one unit.

4. Cost-Prime Cost + Variable Overheads.

5. Sales-Variable Cost = .

6. Contribution-Fixed Costs = .

7. Contribution = x PV Ratio.

8. = Margin of Safety × Profit Volume Ratio.

9. In the break-even chart Volume (in Units) is shown on the (X / Y) axis.

10. = Fixed Cost + Profit

11. = 100-Variable cost to Sales Ratio

12. Sales - (Variable Cost + Fixed Cost).

13. An increase in the physical sales volume (will / will not) change p/V Ratio.

14. An increase in the fixed cost, (will / will not) change P/V Ratio.

15. A decrease in the variable cost per unit will (increase / decrease) P/V Ratio.'

16. A decrease in the contribution margin will (increase / decrease) P/V Ratio

17. An increase in the selling price per unit will (increase / decrease) P/V Ratio.

18. A decrease in the both selling price and variable cost (will / will not) change P/V Ratio.
19. A 10% increase in the selling price and variable cost per unit (will / will not) change P/V
Ratio

20. A 10% increase in the selling price per unit and 10% decrease in the physical sales volume will
(increase / decrease) P/V Ratio.

MATCH THE FOLLOWING:

1. Amount by which total cost change if a. Contribution
the output is changed by one unit.
2. Prime cost + Variable Overheads. b. Y axis
3. Sales – Variable Cost. c. X axis
4. Contribution – Fixed Costs. d. Marginal
5. Contribution = × PV Ratio. 6. Sales
7. In the break-even chart volume (in e. Profit Volume Ratio (PVR)
units) is shown on the
8. In the break-even chart cost is shown f. Marginal Cost
on the
9. = 100 – Variable cost to Sales Ratio g. Profit
10. Contribution h. BE Sales + Margin of Safety
11. Profit Volume Ratio i. Profit / PV Ratio
12. Break-even Sales in Units j. Fixed Cost + Profit
13. Break-even Sales in Value k. BE sales/Selling price
14. Break-even Sales in % of the Sales l. Actual Sales in units – BE sales in units
Margin of safety in Units
15. Margin of Safety in Value m. Margin of safety in value × PVR
16. Profit n. Sales - Variable cost/Sales ×100
17. Sales o. Fixed Cost/Contribution ×100
p. Actual sales in Value – Margin of safety
in value

3. MANAGERIAL DECISION MAKING

MCQS:
1-2: In the following price, cost and revenue functions, which have been established by a company
for one of its products.
Q represents the number of units produced and sold per week:
price (₹ per unit) = 40-0.03Q
Marginal revenue (₹ per unit) = 40-0. 06Q
Total cost per week (₹) = 3,500 + 10Q

1.What price should be set in order to maximise weekly profits?

(a) ₹ 10
(b) ₹ 15
(c) ₹ 25
(d) ₹ 30

2. What will be the profit per week if the selling price of the product was set at ₹ 31 per unit?
(a) ₹ 2,800
(b) ₹ 3,150
(c) ₹ 5,490
(d) ₹ 5,800

3. A company manufactures and sells two products (X and Y) both of which utilise the same skilled
labour. For the coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to
each product are as follows
Product X Y
Selling price per unit ₹ 20 ₹ 40
Variable cost per unit ₹ 12 ₹ 30
Skilled labour hours per unit ₹2 ₹4
Maximum demand (units) per period ₹ 800 ₹ 400
In order to maximise profit in the coming period, how many units of each product should the
company manufacture and sell?
(a) 200 units of X and 400 units of Y
(b) 400 units of X and 300 units of Y
(c) 600 units of X and 200 units of Y
(d) 800 units of X and 100 units of Y

4. A company manufactures and sells a single product. The variable cost of the product is
₹2.50 per unit and all production each month is sold at a price of ₹ 3.70 per unit. A potential
new customer has offered to buy 6,000 units per month at a price of ₹ 2.95 per unit. The company
has sufficient spare capacity to produce this quantity. If the new business is accepted, sales to
existing customers are expected to fall by two units for every 15 units sold to the new customer.
What would be the overall increase in monthly profit which would result from accepting the new
business?
(a) ₹ 1,740
(b) ₹ 2,220
(c) ₹ 2,340
(d) ₹ 2,700

5. A company manufactures four components (L, M, N and P) using the same general purpose
machinery. Weekly demand is 1, 500 units of each component but only 24,000 machine hours
are available each week. A decision has to be made on which component to buy in from an
outside supplier. The following data are available
L M N
variable production cost (₹ per unit) 45 40 30
General purpose machinery hours per unit 3 5 4
purchase price from outside supplier (per unit) 57 55 54
In order to minimise total cost, which component should be purchased from the outside supplier
each week?
(a) Component L
(b) Component M
(c) Component N
(d) Component P

6. A company manufactures two products (L and M) using the same material and labour. It holds no
stocks. Information about the variable costs and maximum demands are as follows:
product L Product M
 ₹/unit ₹/unit Material
(₹ 4 per litre) 13 19 Labour (₹ 7
per hour) 35 28
Units Units Maximum monthly demand
6,000 6,000 Each month 50,000 litres of material and 60,000 labour
hours are available. Which one of the following statements is correct?
(a) Material is a limiting factor but labour is not a limiting factor
(b) Material is not a limiting factor but labour is a limiting factor
(c) Neither material nor labour is a limiting factor
(d) Both material and labour are limiting factors

7. A company would sell 40,000 units of a product if the unit selling price was set at 10 and these
would generate a total contribution of ₹ 1,60,000. If the unit selling price was reduced to ₹ 9.50 then
sales of 44,000 units would result.
Setting unit selling prices of ₹ 10.50 and ₹ 11 would result in sales of 36,000 and 31,000 units
respectively.
Which selling price would generate the highest total contribution?
(a) ₹ 9.50
(b) ₹ 10.00
(c) ₹ 10.50
(d) ₹ 11.00

8. A company which manufactures four components (A, B, C and D), using the same skilled labour,
aims to maximise its profits. The following information is available:
Component
A B C D
Variable production cost per unit (₹) 60 70 75 85
Purchase price per unit from another supplier (₹) 108 130 120 124
Skilled labour hours per unit to manufacture 4 6 5 3
As it has insufficient skilled labour hours available to manufacture all the components required, the
company will need to buy some units of one component from the other supplier. Which component
should be purchased from the other supplier?
(a) Component A
(b) Component B
(c) Component C
(d) Component D

9. A company currently produces 6, 000 units of its single product each period, incurring total
variable costs of ₹ 60,000 and fixed costs of ₹ 42,000. Production will increase to 8,000 units per
period if the company expands capacity resulting in changes both to the variable costs per unit and
to the total fixed costs. For production of 8,000 units per period total variable costs would be ₹
76,000 and fixed costs ₹ 50,000.
What is the reduction in total cost per unit comparing unit costs currently being incurred?
(a) ₹ 0.50
(b) ₹ 0.75
(c) ₹ 1.25
(d) ₹ 2.08
10. A manufacturing company pays its employees a constant salary for working 35 hours each week.
The production process is highly specialised and the quality of output is a critical factor All
completed units are inspected. Currently about 10% of output fais to meet the expected
specification.
The Managing Director has forecast increasing sales and is keen to reduce the labour cost per unit of
production. He has suggested three possible ways of achieving this
1.Improve direct labour productivity
2. Increase the number of hours worked
3. Reduce the rate of rejections
which of the above suggestions would enable the company to reduce the labour cost per unit?
(a) Suggestion only 2
(b) Suggestion 1 and 2 only
(c) Suggestions 1 and 3 only
(d) Suggestions 2 and 3 only

11. Z Limited is a hotel that serves cakes and burgers in its coffee shop. An analysis of its internal
costs has revealed that the variable cost of preparing Its own burgers is ₹ 5.50 per burger compared
to the price of ₹ 8.00 per burger that would be charged by an external bakery. Z Limited employs a
chef to prepare the burgers at a salary of ₹ 1,000 per month. This chef is notable to carry out any
other work in the hotel and is the only employee capable of preparing the burgers.
Calculate the minimum monthly number of sales of burgers at which it is worthwhile preparing the
burgers in the hotel.
(a) 100
(b) 400
(c) 300
(d) cannot be determined without more information

12. The following details relate to Product Z:

₹/Unit
Selling Price 45.00
Purchase Component 14.00
Labour 10.00
Variable Overheads 8.50
Fixed Overheads 4.50
Time on Bottleneck Resources 10 minutes
Product return per minute is
(a) ₹ 0.80
(b) ₹ 1.25
(c) ₹ 2.10
(d) ₹ 3.10

13. When making a decision between manufacturing a component or outsourcing its production, the
information required is:
(i) the internal variable manufacturing cost per component
(ii) the monthly volume of components required
(iii) the internal fixed overhead absorption rate per component
(iv) the monthly specific fixed cost total for, the component
(v) the purchase price of the component from the external supplier
(a) (I) and (v) only
(b) (I), (iii), and (v) only
(c) (I), (ii), (iv), and (v) only
(d) (I), (ii), (iii), and (v) only

14. JB has been trading for the last six months as a fast food retailer. His average gross profit margin
for that period was 33%, on sales of ₹ 1,20,000. His total expenses were ₹ 25,800. He is considering
employing an extra member of staff as he anticipates an increase in business. The cost of the new
employee will be ₹ 18,000 per annum. To stimulate sales, JB will also reduce his gross profit margin
to 30%.
What percentage increase in sales is needed for JB to earn the same net profit in the next six months
as he earned in the first six months?
(a) 21.66%
(b) 25.00%
(c) 35.00%
(d) 60.00%

FILL IN THE BLANKS:

1. cost is the value of the alternatives foregone by adopting a particular strategy or employing
resources in specific manner.

2. cost is the hypothetical or notional cost not involving any actual cash payment computed
only for the purpose of decision-making.

3. cost is the historical cost which is incurred in the past, and not relevant to the decision
required to be made by the management at present.

4. cost which cannot be influenced by the concerned cost centre.

5. costs which under given conditions of performance efficiency should not have been
incurred.

6. Costs are inescapable costs which are essentially to be incurred, within the limits or norms
provided for.

7. Cost is the change in cost due to change in activity from one level to another.

STATE WHETHER TRUE OR FALSE:

1. In Absorption Costing, the prices are fixed so as to cover the total costs which include Fixed Costs
as well as Variable Costs.

2. In Marginal Costing the price can be fixed on the basis of only Variable Costs.
3. If the selling price is below the total cost but above the marginal cost the contribution will lead to
an over-recovery of fixed expenses.

4. If the product is sold at marginal cost, the loss will be equal to the variable expenses.

5. The effect of a price reduction is always to improve the P/V ratio.

6. The effect of a price reduction is always to lower the break-even point.

7. The effect of a price reduction is always to shorten the margin of safety.

8. W the selling price and the variable cost decline by the same amount, the contribution per unit
will decrease.

9. If the selling price and the variable cost decline by the same amount, the break-even point in
terms of units will increase.

10. If the selling price and the variable cost decline by the same amount, the margin of safety in
terms of units will remain unaffected.

MATCH THE FOLLOWING:

1. Value of the alternatives foregone by a. Opportunity Cost
adopting a particular strategy or
employing resources in the specific
manner
2. Hypothetical cost not involving any b. Controllable cost
actual cash payment computed only for
the purpose of decision – making
3. Historical cost which is incurred in the c. Differential cost
past, and not relevant to the decision
required to be made by the
management at the present
4. Cost which cannot be influenced by the d. Unavoidable cost
concerned cost centre
5. Cost which under given conditions of e. Imputed cost
performance efficiency should not be
incurred
6. Inescapable cost which is essentially to f. Avoidable cost
be incurred within the limits or norms
provided for
7. Change in cost due to the change in g. Sunk cost
activity from one level to another
 STANDARD COSTING AND VARIANCE
ANALYSIS
MULTIPLE CHOICE QUESTION:
1. The objective of standard costing is to
(a) Determine profitability of a product
(b) Determine break-even production level
(c) Control costs
(d) Allocate costs with more accuracy

2. A standard cost system may be used in

(a) job order costing, but not process costing
(b) process costing, but not job order costing
(c) either job order costing or process costing
(d) neither job order costing nor process Costing

3. An estimate of what cost should be is known as

(a) Actual cost
(b) Ideal cost
(c) Standard cost
(d) Forecast cost

4. A standard cost is
(a) the total amount that appears on the budget for product costs
(b) a pre-determined cost which is calculated from management's standards of efficient operation
(c) the total number of units x the cost expected
(d) any amount that appears on a budget

5. Which of the following best describes a basic standard?

(a) A standard set at an ideal level, which makes no allowance for normal losses, waste and machine
downtime
(b) A standard which assumes an efficient level of operation, but which includes allowances for
factors such as normal loss, waste and machine downtime
(c) A standard which is kept unchanged over a long period of time
(d) A standard which is based on current price levels

6. A standard which assumes efficient level of operations, but which includes allowance for factors
such as waste and machine downtime are known as an
(a) Ideal standard
(b) Normal standard
(c) Attainable standard
(d) Neither (a) nor (b) nor (c)

7. what standard is based on the assumption of most favourable conditions possible?

(a) Ideal standard
(b) Normal Standard
(c) Expected standard
(d) Attainable Standard

8. The standard cost card contains quantities and costs for

(a) direct material only
(b) direct labour only
(c) direct material and direct labour only
(d) direct material, direct labour, and overhead

9. which one of the following does not accurately describe one of the ways in which standards are
developed?
(a) standard Material quantity may be determined by engineering studies
(b) supplier price lists may be used to determine standard prices of materials
(c) Time and motion studies are sometimes used to determine labour efficiency standards
(d) Employee time cards are often used to determine

10. What term can be defined as a means of assess amount and the actual amount?
(a) Variance analysis
(b) Differential costing
(c) Incremental costing
(d) Marginal Costing

11. A total cost variance is best defined as the difference between

(a) total standard cost for the last year and total standard cost in the current year
(b) total standard cost for the last year and total actual cost in the current year
(c) the standard cost value of output budgeted in a period and the total actual cost incurred
(d) the standard cost value of output achieved in a period and the total actual cost incurred

12. If standard cost is lower than the actual cost, the difference is known as
(a) Favourable
(b) Adverse
(c) positive
(d) Negative

13. A favourable variance occurs when

(a) actual costs are less than marginal costs
(b) standard costs are less than actual costs
(c) actual costs are less than the selling price
(d) actual costs are less than standard costs

14. The standard quantity allowed is computed by multiplying the

(a) actual input in units by the standard output allowed
(b) actual output in units by the standard input allowed
(c) actual output in units by the standard output allowed
(d) standard output in units by the standard input allowed

15. The difference between the actual price and the standard price, multiplied by the actual quantity
(a) materials cost variance
(b) materials usage variance
(c) materials price variance
(d) materials efficiency variance

16. The difference between the actual quantity and the standard quantity, multiplied by the
standard
(a) materials efficiency variance
(b) materials volume variance
(c) materials price variance
(d) materials usage variance

17. Which of the following is correct with regard to using the standard quantity to compute material
standard quantity is used-
(a) Materials Price Variance Yes Materials Usage variance: No
(b) Materials Price Variance: Yes; Materials Usage Variance: Yes
(c) Materials Price Variance: No; Materials Usage Variance: No
(d) Materials Price Variance: No; Materials Usage Variance: Yes

18. Which of the following is correct with regard to using the standard unit price to compute
material standard unit price used
(a) Materials Price Variance: Yes; Materials Usage variance: No
(b) Materials Price Variance: Yes; Materials usage variance: Yes
(c) Materials Price variance: No; Materials usage variance: No
(d) Materials Price Variance No; Materials usage variance: Yes

19. The term “standard hours allowed” measures

(a) budgeted output at actual hour as
(b) budgeted output at standard hours
(c) actual output at standard hours
(d) actual output at actual hours

20. The labour rate variance is computed:

(a) (Actual labour hours worked – Standard labour hours allowed) × Actual labour rate
(b) (Actual labour hours worked-standard labour hours allowed) × standard labour rate
(c) (Actual labour rate - Standard labour rate) × standard hours allowed
(d) (Actual labour rate – Standard labour rate) × Actual hours worked

21. If the actual number of labour hours worked ls less than the standard labour hours allowed for
equivalent units produced, this indicates:
(a) An unfavourable labour rate variance
(b) A favourable total labour variance
(c) An unfavourable labour efficiency variance
(d) A favourable labour efficiency variance

22. Which of the following is correct standard labour hours used to compute labour variance?
(a) Labour Rate Variance: Yes; Labour efficiency Variance: No
(b) Labour Rate Variance: Yes; Labour Efficiency variance: Yes
(c) Labour Rate Variance: No; Labour Efficiency Variance: No
(d) Labour Rate Variance: No; Labour Efficiency Variance: Yes

23. which of the following is correct with regard to using the standard labour rate to compute labour
variances?
Standard labour rate used:
(a) Labour Rate Variance: Yes; Labour Efficiency Variance: No
(b) Labour Rate Variance: Yes; Labour Efficiency Variance: Yes
(c) Labour Rate Variance: No; Labour Efficiency Variance: No
(d) Labour Rate Variance: No; Labour Efficiency variance: Yes

24. What is the primary benefit of a standard costing system?

(a) It records costs at what should have been incurred
(b) It allows for a comparison of differences between actual and standard costs
(c) It is easy to implement
(d) It is inexpensive and easy to use

25. The standard which can be attained under the most favourable conditions possible
(a) Ideal Standard
(b) Expected Standard
(c) Current Standard
(d) Normal Standard

26. A standard which is established for use unaltered for an indefinite period is called
(a) Current standard
(b) Ideal standard
(c) Basic standard
(d) Expected standards

27. Which of the following is not a type of standard, conceptually speaking?

(a) Ideal standards
(b) Negative standards
(c) Expected standards
(d) Current standards

28. Which of the following statements about ideal standards is false?

(a) It is called theoretical or maximum efficiency standard
(b) These are standard costs that are set for production under optimal condition
(c) It makes no allowance for wastage, spoilage and machine breakdowns
(d) It can be used for cash budgeting or product costing

29. The cost of product as determined under standard cost system is

(a) Fixed cost
(b) Historical cost
(c) Direct cost
(d) Predetermined cost

30. The amount of work achievable in an hour, at standard efficiency levels, is

(a) an ideal standard
(b) the direct labour usage per hour
(c) a standard hour
(d) the direct labour efficiency variance

31. while computing variances from standard costs, the difference between the actual and the
standard prices multiplied by the actual quantity yields a
(a) Yield variance
(b) Volume variance
(c) Mix variance
(d) Price variance

32. while evaluating deviations of actual cost from standard cost, the technique used is
(a) Regression analysis
(b) Variance analysis
(c) Linear progression
(d) Trend analysis

33. Which of the following statements is / are true?

(i) The standard cost per unit of materials is used to calculate a materials price variance
(ii) The standard cost per unit of materials is used to calculate a materials usage variance
(iii) The standard cost per unit of materials cannot be determined until the end of the period
(a) Only (i) above
(b) Only (ii) above
(c) Only (iii) above
(d) Both (i) and (ii)

34. The labour cost variance may be expressed as

(a) Budgeted labour cost-Actual labour cost
(b) (Standard wage rage x output achieved)-Actual wage cost
(c) (standard hours-Actual hours) × Actual wage rate
(d) (Standard hours-Actual hours) × standard wage rate

35. Which of the following statements is / are true?

(i) The standard direct labour hours per unit of output is used to calculate a labour rate variance
Period
(ii) The standard direct labour per hour per unit of output is used to calculate a labour efficiency
variance
(iii) The standard direct labour hours per unit of output cannot be determined until the end of the
period
(a) Only (i) above
(b) Only (ii) above
(c) Only (iii) above
(d) Both (i) and (ii) above

36. The labour yield variance is

(a) (Standard production on standard hours-Actual production) (Average standard labour rate per
unit)
(b) (Standard production on actual hours-Actual production) (Average standard labour rate per unit)
(c) (Standard hours for actual production-Revised standard hours) (standard labour rate per unit)
(d) (Actual production on standard hours – Actual production) (Standard labour rate per unit)

37. when the variance is due to the difference between actual overhead and applied overhead it is
called
(a) volume variance
(b) Total overhead variance
(c) Spending variance (d) Efficiency variance

38. Volume variance arises due to the differences between

(a) Standard overhead applied on actual hours and overhead applied to production
(b) Actual overheads and fixed budgeted overheads
(c) Actual overhead and flexible budget based on actual hours
(d) Budgeted allowance based on standard hours allowed and overhead applied to production

39. Expenditure arise due to the difference between

(a) Standard overhead applied on actual hours and overheads applied to production
(b) Actual overhead and fixed budget overhead
(c) Actual overhead and flexible budget based on actual hours
(d) Purchase of capital equipment and budgeted capital equipment

40. Efficiency variance arises due to the difference between

(a) Standard overhead applied on actual hours and overhead applied to production
(c) Actual overheads and fixed budget overheads
(d) Purchase of capital equipment and budgeted capital equipment

41. Fixed overhead cost variance is the difference between:

(a) Actual fixed cost and Budgeted fixed cost
(b) Actual fixed cost and Standard fixed cost
(c) Actual fixed cost and Applied fixed cost
(d) Budgeted fixed cost and Applied fixed cost

42. The difference between budgeted fixed overhead Costs and applied fixed overhead costs is
(a) Fixed overhead costs variance
(b) Fixed overhead expenditure variance
(c) Fixed overhead volume variance
(d) Fixed overhead efficiency variance

43. Fixed overhead efficiency variance is equal to

(a) Actual fixed overhead rate per hour x (Actual hours – Budgeted hours)
(b) Actual fixed overhead rate per hour x (Actual hours – Standard hours for actual production)
(c) Standard fixed overhead rate per hour x (Actual hours – Standard hours for standard production)
(d) Standard fixed overheads rate per hour x (Actual hours – Standard hours for actual production)

44. Sale volume variance is the difference between

(a) Actual quantity sold at actual Price and standard quantity at actual price
(b) Actual quantity sold at actual price and standard quantity at standard price
(c) Actual quantity sold at standard Price and standard quantity at standard price
(d) Actual quantity sold at standard price and standard quantity at actual price

45. When a company produces more than one product, the sales volume variance can be divided
into
(a) Sales mix variance and sales price variance
(b) Sales efficiency variance and sales price variance
(c) Sales mix variance and production volume variance
(d) Sales quantity variance and sales mix variance

46. Which of the following is a purpose of standard costing?

(a) To determine profit at different levels
(b) To determine break even production level
(c) To control costs
(d) To allocate cost with more accuracy

47. Which of the following best describes a basic standard?

(a) A standard set at an ideal level, which makes no allowance for normal losses, waste and machine
downtime.
(b) A standard which assumes an efficient level of operation, but which includes allowances for
factors such as normal loss, waste and machine downtime.
(c) A standard which is kept unchanged over a period of time.
(d) A standard which is based on current price levels.

48. Actual units of direct materials used were 20,000 at an actual cost of ₹ 40,000. Standard unit cost
is ₹ 2.10. Assuming the material price variance is recognized when the material are used, the
materials price variance (MPV) is:
(a) ₹ 1,000 favourable
(b) ₹ 1,000 unfavourable
(c) ₹ 2,000 favourable
(d) ₹ 2,000 unfavourable

49. If material cost variance is ₹ 9,400 (favourable) and material usage variance is ₹ 8,200 (adverse),
then material price variance (MPV) is
(a) ₹ 5,600 (favourable)
(b) ₹ 5,600 (adverse)
(c) ₹ 6,400 (favourable)
(d) ₹17,600 (Adverse)
(e) ₹ 17,600 (favourable)

50. The actual materials price (AP) was ₹ 3.50, the actual quantity (AQ) of material was 5,100 units,
and the Material Price Variance (MPV) was ₹ 1,275 unfavourable. The Standard material price (SP)
was
(a) ₹ 3.75
(b) ₹ 3.30
(c) ₹ 3.00
(d) ₹ 3.25
51. During the month of December 2013, XLNT Ltd. used 5,000 kgs of materials at a total standard
cost of ₹ 20,000. The material usage variance was ₹ 360 (adverse). The standard usage material (SQ)
for the period is
(a) 4,000 kgs
(b) 4,910 kgs
(c) 5,000 kgs
(d) 5,850 kgs
(e) 6,340 kgs

52. The standard units (SQ) were 5,200, the standard price (SP) was ₹ 3.25, and the materials
quantity variance (MQV) was ₹325 (favourable). The actual units (AQ) were:
(a) 5,300
(b) 5,000
(c) 5,100
(d) 5,200

53. Last month 27,000 direct labour hours were worked at an actual cost of ₹ 2,36,385 and the hour
was ₹ 8.50. What was the labour efficiency variance (LEV)?
(a) ₹ 17,595 Adverse
(b) ₹ 17,595 Favourable
(c) ₹ 24,480 Adverse
(d) ₹ 24,480 Favourable

54. consider the following data pertaining to Roy Ltd. For the month of June 2014:
Actual direct labour hours – 27,600
Standard direct labour hours – 28,000
Total direct labour cost (₹) - 1,93,200
If direct labour efficiency variance is 26,560 (favourable), the direct labour rate variance (LRV)
(a) ₹ 12,252 (adverse)
(b) ₹ 15,560 (adverse)
(c) ₹ 15,560 (favourable)
(d) ₹ 16,560 (adverse)
(e) ₹ 16,560 (favourable)

55. The standard hourly rate was ₹ 1.40. The actual rate was ₹ 1.30. The labour rate variance was ₹
600, favourable. The actual labour hours (AH) were
(a) 6,000
(b) 6,400
(c) 1,000
(d) 1,500

56. A Ltd. used 4,538 kgs of material at a standard cost of ₹ 2.50 per kg. The material usage variance
was ₹ 280 (Favourable). The standard usage of material for the period is
(a) 4,700 kgs
(b) 4,650 kgs
(c) 4,600 kgs
(d) 4,588 kgs
57. R Ltd. a manufacturer of portable radios, purchases the components from subcontractors and
assembles them into a complete radio. Each radio requires three units each of part X which has
standard cost of ₹ 145 per unit
Following is the result pertaining to part X for the month of December 2010
Particulars Units
Purchases (₹ 18,00,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000
The material usage variance for the month of December 2010 is
(a) ₹ 1,45,000 unfavourable
(b) ₹ 1,45,000 favourable
(c) ₹ 4,35,000 unfavourable
(d) ₹ 4,35,000 favourable

58. X Ltd. Has furnished the following data for the month of March 2010
Particulars Standard Actual
Material cost per kg (₹) 70 72
Material used (Kgs) 3,500 3,420
The material price variance is
(a) ₹ 7,000 (Adverse)
(b) ₹ 7,000 (Favourable)
(c) ₹ 6,840 (Adverse)
(d) ₹ 6,840 (Favourable)

59. During the month of September 2010, 7,800 kg of material was purchased at a total cost of ₹
16,380. The stock of material increased by 440 kg. It is the company policy to value the stocks at
standard purchase price. If the material price variance was 1,170 (Adverse), the standard price per
kg of material is
(a) ₹ 1.95
(b) ₹ 2.10
(c) ₹ 2.23
(d) ₹ 2.25

60. The standard and the actual requirements of material of a company are as under:
Standard-2,400 units at the rate of ₹ 20 per unit
Actual-2, 600 units at the rate of ₹ 19 per unit
The material cost variance is
(a) ₹ 2,600 (Adverse)
(b) ₹ 1,400 (Favourable)
(c) ₹ 2,400 (Adverse)
(d) ₹ 1,400 (Adverse)

61. Last month 27, 000 direct labour hours were worked at an actual cost of ₹ 2,36,385 and the
standard direct labour hours of production were 29,880. The standard direct labour cost per hour
was ₹ 8.50.
(a) ₹ 17,595 Adverse
(b) ₹ 17,595 Favourable
(c) ₹ 24,480 Adverse
(d) ₹ 24,480 Favourable

62. In the four-week production period just completed, B Ltd. Produced 570 units. The standard
labour cost for each unit was ₹ 13.50, based on budgeted production of 550 units. The actual labour
cost for the period was ₹ 8,238.
What was the / labour rate variance for the period?
(a) ₹ 543 adverse
(b) ₹ 543 favourable
(c) ₹ 813 adverse
(d) ₹ 813 favourable

63. During the period, 17,500 labour hours were worked at a standard cost of ₹ 6.50 per hour. If
variance is ₹ 7,800 (favourable), the standard direct labour hours are
(a) 20,000
(b) 19,200
(c) 18,700
(d) 18,500

64. Consider the following data pertaining to M Ltd. For the month of March 2010:
Particulars Budget Actual
Variable overheads cost (₹) 6,000 5,800
Labour Hours 500 400
Units produced 1,500 1,470
(a) ₹ 1,200 (Favourable)
(b) ₹ 1,200 (Adverse)
(c) ₹ 1,080 (Favourable)
(d) ₹ 120 (Adverse)

65-66: X40 is one of many items produced by the manufacturing division. Its standard cost is based
on estimated production of 10,000 units per month. The standard cost schedule for one unit of X40
shows that 2 hours of direct labour are required at ₹ 15 per lab.

65. The direct labour rate variance for April is

(a) ₹ 20,000 Favourable
(b) ₹ 22,000 Favourable
(c) ₹ 24,000 Adverse
(d) ₹ 24,000 Favourable

66. The variable overhead efficiency variance for April is

(a) ₹ 12,000 Adverse
(b) ₹ 12,000 Favourable
(c) ₹ 15,000 Adverse
(d) ₹ 15,000 Favourable

67. Consider the following data pertaining to production department in Y Ltd. For the month of
June2010:
Actual overhead costs (₹) 23,200
Standard hours for actual work 3,300
Actual hours during the month 3,500
Standard overhead rate per hour (₹) 6.50
The overhead variance is
(a) ₹ 1,750 (Favourable)
(b) ₹ 1,750 (Adverse)
(c) ₹ 1, 250 (Favourable)
(d) ₹ 450 (Adverse)

68. HL Company has the following budget and actual data pertaining to product 'P' for the month of
March 2010:
Budgeted fixed overhead cost (₹) 1,50,000
Budgeted production (units) 12,000
Actual fixed overhead cost (₹) 1,62,000
Actual production (units) 11,800
The fixed overhead volume variance is
(a) ₹ 2,500 (Adverse)
(b) ₹ 2,500 (Favourable)
(c) ₹ 2,700 (Adverse)
(d) ₹ 2,746 (Favourable)

69. A company operates a standard absorption costing system in which the standard fixed
production overhead rate is ₹ 9 per hour.
The following data relate to last month
Budgeted hours - 8,000
Standard hours for actual production - 8,200
Actual hours worked = 8,400
What was the fixed production overhead capacity variance for last month?
(a) ₹ 1,800 Adverse
(b) ₹ 1,800 Favourable
(c) ₹ 3,600 Adverse
(d) ₹ 3,600 Favourable

70 A company uses a standard absorption costing system. Last month budgeted production was
8,000 units and the standard fixed production was ₹ 15 per unit. Actual production last month was
8,500 units and the actual fixed production overhead cost was ₹ 17 per unit.
What was the total adverse fixed production overheads for last month?
(a) ₹ 7,500
(b) ₹ 16,000
(c) ₹ 17,000
(d) ₹ 24,500

71. N. Ltd. has furnished the following budgeted and actual sales for the month of September 2010:
Particulars Budget Actual
Units sold 8,000 8,400
Sale price per unit (₹) 65 62
The sa/es volume variance is
(a) ₹ 26,800 (Adverse)
(b) ₹ 26,800 (Favourable)
(c) ₹ 26,000 (Adverse)
(d) ₹ 26,000 (Favourable)

72. Last month a company budgeted to sell 8,000 units at a price of ₹ 12.50 Per unit. Actual sales last
month were 9,000 units giving a total sales revenue of ₹ 1,17,000.
What was the sales price variance for last month?
(a) ₹ 4,000 favourable
(b) ₹ 4,000 adverse
(c) ₹ 4,500 favourable
(d) ₹ 4,500 adverse
FILL UPS

1. Cost is defined as-° a pre-determined cost which is calculated from management’s

standards of efficient operation and the relevant necessary expenditure".

2. A Standard is the standard which Is “established for use unaltered for an indefinite period
which may be a long period of time".

3. A Standard is the standard which is "established for use over a short period of time and is
related to current conditions".

4. A/An Standard is the Standard Which can be attained under the most favourable conditions
possible".

5. A (n) standard reflects perfect operating conditions.

6. The cost that should be achieved given materials, labour, and overhead standards is the cost.

7. Time means the time expected to produce one unit of output.

8. Cost is the difference between a standard cost and the comparable actual cost during a
period.

9. The difference between what was paid and what should have been paid for actual inputs called
the variance.

10. There is (favourable / adverse) whenever the actual rupees spent are less than the
standard cost.

11. There is (favourable / adverse) variance whenever the actual rupees spent are greater
than the standard cost.

12. Material Variance is the difference between the Standard cost of material specified for the
output achieved and the Actual cost of direct material used.

13. The standard price is the price that should have been paid per unit of (input/output).
14. The quantity of (input/output) allowed per unit of (input / output) Quantity (input/output)
is the Standard Quantity.

15. Standard Quantity is the quantity of materials that should (budgeted / actual) output. Have been
used to produce the (budgeted/actual) output.

16. The difference between what was paid for materials purchased and what should have been paid
is the material variance.

17. The difference between the materials actually used and the materials allowed for actual output
multiplied by the standard price is the material variance.

18. The difference between standard quantities and actual quantities multiplied by the standard
price is the variance.

19. Material variance is the difference between the standard Quantity specified for the actual
output and the actual quantity used for the actual output.

20. Material Variance is computed by the formula (SQ-AQ) × SP.

22. The difference between the actual payroll and what should have been paid for the actual hours
worked in the labour Variance.

23. Standard Hours are the labour hours that should have been used to produce the
(actual/standard) output.

24. Labour Variance is the difference between the Standard Hours specified for the actual
output and the Actual Hours used for the actual output.

25. Labour Variance is computed by the formula: (Standard Hours-Actual Hours) × Standard
Rate.

26. Labour Cost Variance = Labour Variance + Labour Variance.

27. The difference between the actual direct labour hours used and the standard labour hours
allowed multiplied by the standard hourly wage rate is the Labour Variance.

28. Material Variance is computed by the formula (Revised Quantity-Actual Quantity) ×

Standard Price.

29. Material Variance is computed by the formula (Standard Quantity-Revised Quantity) ×

Standard Price.

30. Labour Efficiency Variance is further divided into (a) Labour Variance and (b) Labour
variance.

31. Labour Variance is computed by the formula (Standard Hours-Revised Hours) × Standard
Rate.
32. Recovered Overheads = Hours × Standard Rate.

33. Budgeted Overheads = Budgeted Hours × Rate.

34. Overheads Variance is the difference between the Standard volume of output and the
Budgeted volume of output.

35. Overheads Variance is equal to (Standard Hours-Budgeted Hours) × Standard Rate.

36. Overheads Variance is equal to Budgeted Overheads-Actual Overheads.

37. Overheads Variance is equal to (Standard Hours-Actual Hours) × Standard Rate.

38. Overheads Variance is the difference between the Actual volume of output specified and
the Budgeted volume of output.

39. Sales Variance is equal to (Budgeted Quantity-Actual Quantity) × Budgeted Price.

40. Sales Quantity (sub-volume) variance is equal to ( Quantity-Revised Quantity) × Budgeted

Price.

TRUE OR FALSE

1 Estimated Cost is defined as-"a pre-determined cost which is calculated from managements of
efficient operation and the relevant necessary expenditure".

2. An ideal standard is the Standard which is "established for use unaltered for an indefinite period
which may be a long period of time”.

3. A Basic standard is the Standard which is “established for use over a short period of time
possible".

4. A Basic standard is the Standard “Which can be attained under the most favourable condition
possible”.

5. Labour cost variance is further divided into (a) Labour Yield Variance and (b) Labour Rate Variance

6. Standard Costing helps to know what the cost will be.

7. Variance Analysis is part of Marginal Costing.

8. standards for the same activity are the same for different firms.

9. standard cost can be used for the valuation of stock and work-in-progress.

10. The main purpose of standard costing is cost control.

11. comparison of actual results with an Ideal Standard would result in large unfavourable variances.

12. Standard Cost is nothing but average cost as per the cost records for past years.

13. All variances are expressed in monetary terms only.

14. All variances are expressed in monetary terms only.

15. If the standard cost is lower than the actual cost, the variance is Favourable.

15. Total Cost Variances are calculated based on the budgeted sales level.

16. Quantity variance and price variance are synonymous terms.

17. A standard price is the price that should be paid per unit of output.

18. Standard Price is used while computing all Material Cost Variances.

19. Standard Quantity is used while computing all Material Cost Variances.

20. Standard Quantity is not used while computing Material Price Variances.

21. Actual Quantity is used while computing all Material Cost Variances.

22. Actual Price is used while computing alt Material Cost Variances.

23. Actual Price is used while computing Material Usage Variances.

24. Standard Rate is used while computing all Labour Cost Variances.

25. Standard Hour is used while computing all Labour Cost Variances.

26. Standard Hour is not used while computing Labour Rate Variances.

27. Actual Hour is used while computing all Labour Cost Variances.

28. Actual Rate is used while computing all Labour Cost variances.

29. Actual Rate is used while computing Labour Efficiency Variances.

30. Material Yield Variance is equal to (Standard Quantity-Actual Quantity) × Standard price.

31. Material Yield variance is further divided into (a) Materials Usage variance: and (b) Materials
Mixture Variance.

32. Revised standard Quantity for each input is required to be computed for calculating Material
Yield Variance.
33. Overhead variance is nothing but variation in absorption or recovery of overheads.

34. Overheads are absorbed on the basis of Standard Overhead Rate [SR] such rate may be

35. A negative Sales Value Variance is said to be favourable.

36. Sales Quantity Variance is the difference between the budgeted quantity of sales and the actual
quantity of sales.

MATCH THE FOLLOWING:

1. Standard cost a. (SP – AP) × AQ
2. Basic standard b. Difference between the standard cost
of material specified for the output
achieved and the actual cost of direct
material used
3. Current standard c. A pre-determined cost which is
calculated from management’s
standards of efficient operation and the
relevant necessary expenditure
4. Ideal standard d. A standard established for use over a
short period of time
5. Standard time e. Difference between a standard cost
and the comparable actual cost during
a period
6. Variance f. (Standard hours – Actual hours) ×
Standard rate
7. Material cost variance g. A standard established for use
unaltered for an indefinite period
8. Material usage variance h. Time expected to be required for the
workers to complete a job
9. Material price variance i. Standard which can be attained under
most favourable conditions possible
10. Labour efficiency variance j. Quantity specified for the actual
output and the actual quantity used for
the actual output

1. A pre-determined cost which is a. Standard time

calculated from management’s
standards of efficient operation and
the relevant necessary expenditure
2. A standard established for use b. Material cost variance
unaltered for an indefinite period
3. A standard established for use c. Material mixture variance
unaltered for an indefinite period
4. A standard established for use over a d. Basic standard
short period of time
5. Standard which can be attained under e. Labour yield variance
the most favourable condition
possible
6. Difference between a standard cost f. Overheads volume variance
and the comparable actual cost during
a period
7. Difference between a standard cost of g. Standard cost
material specified for the output
achieved and the actual cost of direct
material used
8. Difference between a standard h. Ideal standard
quantity specified for the actual
output and the actual quantity used
for the actual output
9. (Revised quantity – Actual quantity) × i. Recovered standard
Standard Price
10. (Standard quantity – Revised quantity) j. Current standard
× Standard Price
11. SP – AP × AQ k. Variance
12. (Standard hours – Actual hours) × l. Overheads expenditure variance
Standard rate
13. (Standard hours – Revised hours) × m. Material yield variance
Standard rate
14. Actual hours × Standard rate n. Material usage variance
15. Budgeted hours × Standard rate o. Budgeted overheads
16. (Standard hours – Budgeted hours) × p. Overheads capacity variance
Standard rate
17. Budgeted overheads – Actual q. Sales quantity (sub-volume) variance
overheads
18. (Standard hours – Actual hours) × r. Material price variance
Standard rate
19. Difference between the actual volume s. Sales volume variance
of output specified and the budgeted
volume of output
20. (Budgeted quantity – Actual quantity) t. Overheads efficiency variance
× Budgeted sales price
21. (Budgeted quantity – Revised u. Labour efficiency variance
quantity) × Budgeted sales price