MANAGEMENT ACCOUNTING (F2/FMA) – REVISION QUESTION BANK

78.6 What type of standard is prepared on the basis that all activities are undertaken at a
maximum level of efficiency?

A Attainable
B Ideal
C Efficient
D Realistic
(12 marks)

Question 79 MCQs VARIANCE ANALYSIS

The following information relates to questions 79.1 and 79.2:

The standard direct material cost per unit for a product is calculated as follows:

10·5 litres at $2·50 per litre

Last month the actual price paid for 12,000 litres of material used was 4% above standard and the direct
material usage variance was $1,815 favourable. No inventory of material is held.

79.1 What was the adverse direct material price variance for last month?

A $1,000
B $1,200
C $1,212
D $1,260

79.2 What was the actual production last month (in units)?

A 1,074
B 1,119
C 1,212
D 1,258

79.3 A company operates a standard marginal costing system. Last month its actual fixed
overhead expenditure was 10% above budget resulting in a fixed overhead expenditure
variance of $36,000.

What was the actual expenditure on fixed overheads last month?

A $324,000
B $360,000
C $396,000
D $400,000

79.4 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 total sales revenue of $117,000.

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

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 REVISION QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)

79.5 A company uses a standard absorption costing system. Last month budgeted production was
8,000 units and the standard fixed production overhead cost 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 overhead variance for last month?

A $7,500
B $16,000
C $17,000
D $24,500

The following information relates to questions 79.6 and 79.7:

A company operating a standard costing system has the following direct labour standards per unit for
one of its products:

4 hours at $12·50 per hour

Last month when 2,195 units of the product were manufactured, the actual direct labour cost for the
9,200 hours worked was $110,750.

79.6 What was the direct labour rate variance for last month?

A $4,250 favourable
B $4,250 adverse
C $5,250 favourable
D $5,250 adverse

79.7 What was the direct labour efficiency variance for last month?

A $4,250 favourable
B $4,250 adverse
C $5,250 favourable
D $5,250 adverse

79.8 A company’s budgeted sales for last month were 10,000 units with a standard selling price of
$20 per unit and a contribution of $0.40 for every $1 of revenue. Last month actual sales of
10,500 units with total revenue of $204,750 were achieved.

What were the sales price and sales volume contribution variances?

Sales price variance ($) Sales volume contribution variance ($)

A 5,250 adverse 4,000 favourable
B 5,250 adverse 4,000 adverse
C 5,000 adverse 4,000 favourable
D 5,000 adverse 4,000 adverse

79.9 A company operates a standard absorption costing system. The standard fixed production
overhead rate is $15 per hour.

The following data relate to last month:

Actual hours worked 5,500

Budgeted hours 5,000
Standard hours for actual production 4,800

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What was the fixed production overhead capacity variance?

A $7,500 adverse
B $7,500 favourable
C $10,500 adverse
D $10,500 favourable

79.10 Last month 27,000 direct labour hours were worked at an actual cost of $236,385 and the
standard direct labour hours of production were 29,880. The standard direct labour cost per
hour was $8·50.
What was the labour efficiency variance?

A $17,595 Adverse
B $17,595 Favourable
C $24,480 Adverse
D $24,480 Favourable

79.11 Last month a company’s budgeted sales were 5,000 units. The standard selling price was $6
per unit with a standard contribution of $0.60 for every $1 of sales. Actual sales were 4,650
units with total revenue of $30,225.
What were the favourable sales price and adverse sales volume contribution variances?

Sales price Sales volume contribution

$ $
A 2,325 1,260
B 2,500 1,260
C 2,325 2,100
D 2,500 2,100

79.12 A company uses standard absorption costing. The following data relate to last month:
Budget Actual
Sales and production (units) 1,000 900

Standard Actual
$ $
Selling price per unit 50 52
Total production cost per unit 39 40

What was the adverse sales volume profit variance last month?

A $1,000
B $1,100
C $1,200
D $1,300

79.13 A company operates a standard marginal costing system. Last month actual fixed overhead
expenditure was 2% below budget and the fixed overhead expenditure variance was $1,250.
What was the actual fixed overhead expenditure for last month?

A $61,250
B $62,475
C $62,500
D $63,750

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 REVISION QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)

79.14 The standard raw material cost for a unit of production is 2 kg at $4.00 per kg. Purchases for
a period were 13,000 kg at an actual cost of $4.50 per kg. Raw material inventory, which is
valued at standard cost, increased by $8,000 in the period. Budgeted production for the
period was 6,000 units but actual production was only 5,000 units.

What was the raw material usage variance for the period?

A $20,000 Adverse
B $4,000 Adverse
C $4,000 Favourable
D $12,000 Favourable

79.15 A company sold 20,000 units in a period when budgeted sales were 18,000 units.

On an absorption costing basis the sales volume profit variance for the period had a value of
$10,000. The standard fixed overhead absorption rate was $4·00 per unit.

What would the sales volume contribution variance be on a marginal costing basis?

A $2,000 adverse
B $2,000 favourable
C $18,000 adverse
D $18,000 favourable

79.16 A company uses production labour hours to absorb its fixed production overheads. A strike
by its workforce results in a loss of 30% of the period’s budgeted production labour hours.

Which of the following variances will occur as a result of the loss in production labour hours?

A Adverse fixed overhead capacity variance

B Adverse fixed overhead efficiency variance
C Adverse direct labour efficiency variance
D Adverse direct labour rate variance

The following data relates to questions 79.17 and 79.18:

The following data is available for product X for a period:
Budget Actual
Sales units 5,000 5,200
–––––– ––––––
$ $
Sales revenue 50,000 57,200
Manufacturing cost 30,000 31,200
–––––– ––––––
Profit 20,000 26,000
–––––– ––––––
79.17 What is the sales price variance?

A $5,200 adverse
B $5,000 favourable
C $5,200 favourable
D $7,200 favourable

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MANAGEMENT ACCOUNTING (F2/FMA) – REVISION QUESTION BANK

79.18 What is the sales volume profit variance?

A $800 favourable
B $1,000 favourable
C $6,000 favourable
D $7,200 adverse

79.19 A company budgeted to sell 5,000 units of a product in November at a standard price of $30
per unit and to earn a profit of $25,000. It actually sold 6,000 units at $28 per unit and earned
a profit of $32,000.
What was the favourable sales volume profit variance for November?

A $5,000
B $7,000
C $12,000
D $30,000

The following data relates to questions 79.20 and 79.21:

The standard direct labour cost for a product is 2 hours per unit at $12 per hour. In May, when 100,000
units were produced, the company paid direct wages of $13 per hour for the 205,000 hours worked.

79.20 What was the direct labour efficiency variance for May?

A $60,000 adverse
B $60,000 favourable
C $265,000 favourable
D $265,000 adverse

79.21 What was the direct labour rate variance for May?

A $200,000 adverse
B $205,000 favourable
C $205,000 adverse
D $265,000 adverse

79.22 Which of following may cause an adverse efficiency variance for labour?

A Higher wage rates

B Improved training
C Machinery downtime
D Unauthorised absenteeism

79.23 Which of following may account for a favourable materials variance?

A General inflation
B Poorly trained machine operators
C Increased exchange rates for imported materials
D Scarcity in supply of materials

79.24 Which of following may cause a favourable efficiency variance for labour?

A Conflicts with a trade union

B Higher wage rates producing motivational benefits
C Inferior materials being used
D Lower skilled labour being used

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 REVISION QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)

79.25 Which of the following is normally associated with an adverse sales variance?

A A slight downward change in demand following a major price increase

B A slight upwards change in demand following a major price reduction
C Higher sales volume
D Higher selling prices

79.26 A company has correctly calculated a favourable direct material variance by subtracting its
actual direct material cost from its flexed budget direct material cost.

Which of the following could have caused the variance?

(1) A fall in direct material prices

(2) A fall in raw material usage per unit
(3) Units produced being less than budgeted
(4) Units sold being less than budgeted

A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 2 and 4 only

79.27 A company has recorded the following variances for a period:

Sales volume variance $25,000 adverse

Sales price variance $5,000 favourable
Total cost variance $12,000 adverse

Standard profit for the actual level of sales was $115,000.

What was the original budgeted profit for the period?

$______

79.28 A manufacturing company operates a standard absorption costing system. Last month 25,000
production hours were budgeted and the budgeted fixed production cost was $125,000. The
actual hours worked were 24,000 and standard hours for actual production were 27,000.

What was the fixed production overhead efficiency variance?

A $15,000 Favourable
B $5,000 Favourable
C $5,000 Adverse
D $10,000 Favourable

79.29 A manufacturing company operates a standard absorption costing system. Last month 25,000
production hours were budgeted and the budgeted fixed production overhead cost was
$125,000. Last month the actual hours worked were 26,000 and the standard hours for actual
production were 24,000.

What was the fixed production overhead capacity variance for last month?

A $5,000 Adverse
B $5,000 Favourable
C $10,000 Adverse
D $10,000 Favourable

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MANAGEMENT ACCOUNTING (F2/FMA) – REVISION QUESTION BANK

79.30 A company uses standard marginal costing. Last month the standard contribution on actual
sales was $10,000 and the following variances arose:
$
Total variable costs variance 2,000 adverse
Sales price variance 500 favourable
Sales volume variance 1,000 adverse

What was the actual contribution for last month?

$______

79.31 A company uses marginal costing. Last month the standard contribution on actual sales was
$40,000 and the following variances arose:

Sales price variance $1,000 favourable

Sales volume variance $3,500 adverse
Fixed overhead expenditure variance $2,000 adverse

There were no variable cost variances last month.

What was the actual contribution for last month?

$______

79.32 A company uses marginal costing. Last month the budgeted contribution was $20,000 and
the only variances that occurred were as follows:
$
Sales price 3,000 adverse
Sales volume contribution 5,000 favourable
Fixed overhead expenditure 1,000 adverse

What was the actual contribution last month?

$______

79.33 A company uses an absorption costing system. Last month the actual profit was $500,000.
The only variances recorded for the month were as follows:

$000
Sales volume variance 10 adverse
Fixed production overhead capacity variance 30 favourable
Fixed production overhead efficiency variance 40 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead expenditure variance 50 favourable
Direct labour efficiency variance 15 adverse

What was the budgeted profit for last month?

A $485,000
B $495,000
C $505,000
D $515,000

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 REVISION QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)

79.34 A company uses an absorption costing. Actual profit last period was $25,000, which was
$5,000 less than budgeted profit. The standard profit on actual sales for the period was
$15,000. Only three variances occurred in the period: a sales volume profit variance, a sales
price variance and a direct material price variance.

Which of the following is a valid combination of the three variances?

Sales volume Sales price Direct material

profit variance variance price variance
A $15,000 A $2,000 F $8,000 F
B $5,000 A $2,000 A $2,000 F
C $15,000 A $2,000 A $8,000 A
D $5,000 A $5,000 F $5,000 A

79.35 A company uses standard marginal costing. Last month, when all sales were at the standard
selling price, the standard contribution from actual sales was $50,000 and the following
variances arose:
$
Total variable costs variance 3,500 adverse
Total fixed costs variance 1,000 favourable
Sales volume contribution variance 2,000 favourable

What was the actual contribution for last month?

$______

79.36 A company calculates the following under an absorption costing system:

(1) The sales volume variance

(2) The total fixed overhead variance
(3) The total variable overhead variance

If a company changed to a marginal costing system, which variances could change in

value?

A 1 only
B 2 only
C 1 and 2 only
D 1, 2 and 3

79.37 A company uses a standard absorption costing system. Last month the actual profit was
$500,000. The only variances recorded for the month were as follows:
$000
Sales volume profit variance 10 adverse
Fixed production overhead capacity variance 30 favourable
Fixed production overhead efficiency variance 40 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead expenditure 50 favourable
Direct labour efficiency variance 15 adverse

What was the budgeted profit for last month?

A $485,000
B $495,000
C $505,000
D $515,000

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MANAGEMENT ACCOUNTING (F2/FMA) – REVISION QUESTION BANK

79.38 A company uses standard absorption costing. Actual profit last period was $25,000, which
was $5,000 less than budgeted profit. The standard profit on actual sales for the period was
$15,000. Only three variances occurred in the period: a sales volume profit variance, a sales
price variance and a direct material price variance.

Which of the following is a valid combination of the three variances?

Sales volume Sales price Direct material

profit variance variance price variance
A $15,000 A $2,000 F $8,000 F
B $5,000 A $2,000 A $2,000 F
C $15,000 A $2,000 A $8,000 A
D $5,000 A $5,000 F $5,000 A

79.39 A company’s actual profit for a period was $27,000. The only variances for the period were:
$
Sales price 5,000 adverse
Fixed overhead volume 3,000 favourable
Fixed overhead capacity 4,000 favourable
Fixed overhead efficiency 1,000 adverse

What was the budgeted profit for the period?

A $25,000
B $26,000
C $28,000
D $29,000

79.40 A company uses standard marginal costing. Its budgeted contribution for the last month was
$20,000. The actual contribution for the month was $15,000, and the following variances
have been calculated:

Sales volume contribution variance $5,000 adverse

Sales price variance $9,000 favourable
Fixed overhead expenditure variance $3,000 favourable

What was the total variable cost variance?

A $9,000 adverse
B $9,000 favourable
C $12,000 adverse
D $12,000 favourable
(80 marks)

Question 80 CARTER

Carter is considering whether to invest in a machine which will enable a process, at present carried out
manually, to be performed more efficiently. The machine will cost $35,000.

It is estimated that the new machine will save $6,500 in annual labour costs at an additional cost of
$1,500 per year. The machine has an expected life of 15 years at the end of which it will have zero
scrap value. The mechanisation will involve the scrapping of some loose tools and equipment which
have zero book value but a scrap value of $3,000. In 15 years’ time these would be worthless.

The company can borrow at 10%. Assume all annual cash flows occur at the end of each year.

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