Here are 100 multiple-choice questions covering the fundamental concepts of variance analysis for the US CMA Part 1 exam. The questions focus on the core principles, formulas, and interpretation of variances for direct materials, direct labor, and overhead.
Note: In CMA terminology, an Unfavorable (U) variance occurs when actual costs are higher than standard, or actual quantities are greater than standard. A Favorable (F) variance occurs when actual costs are lower than standard, or actual quantities are less than standard.
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Section 1: Fundamental Concepts & Responsibility
1. What is the primary purpose of variance analysis?
A. To calculate the total profit of a company
B. To compare actual results to budgeted/standard costs to identify deviations for control and investigation
C. To determine the tax liability of a corporation
D. To prepare the statement of cash flows
Correct Answer: B
Rationale: Variance analysis is a control tool used to investigate differences between planned and actual performance to improve future decision-making.
2. Which of the following variances is generally the responsibility of the Purchasing Manager?
A. Materials Usage Variance
B. Labor Efficiency Variance
C. Materials Price Variance
D. Variable Overhead Efficiency Variance
Correct Answer: C
Rationale: The purchasing manager is responsible for negotiating prices and acquiring materials, making them accountable for the Materials Price Variance.
3. In a standard cost system, the difference between actual costs and the flexible budget for the actual output is known as:
A. Sales Volume Variance
B. Flexible Budget Variance
C. Static Budget Variance
D. Production Volume Variance
Correct Answer: B
Rationale: The flexible budget variance is the difference between actual results and the flexible budget adjusted for actual output volume.
4. A favorable variance indicates that:
A. Actual profit was lower than budgeted
B. Actual costs were lower than standard, or actual revenue was higher than standard
C. Actual input quantities exceeded standard quantities
D. The company failed to meet its sales targets
Correct Answer: B
Rationale: Favorable variances are positive signs that actual performance was better than expected in terms of cost or revenue.
5. Which department is typically held responsible for an unfavorable labor efficiency variance?
A. Sales Department
B. Production Department
C. Human Resources
D. Finance Department
Correct Answer: B
Rationale: The production department or foreman is responsible for the efficient use of labor on the production floor.
6. The "Management by Exception" principle in variance analysis suggests that:
A. All variances should be investigated regardless of size
B. Only favorable variances should be investigated
C. Management should focus attention on significant deviations from budget
D. Variances should be ignored until year-end
Correct Answer: C
Rationale: Management by exception allows managers to focus on issues that are out of the ordinary and significant, rather than reviewing every single transaction.
7. The static budget variance is calculated as:
A. Flexible Budget Variance + Sales Volume Variance
B. Actual Results - Static Budget
C. Actual Results - Flexible Budget
D. Sales Volume Variance - Flexible Budget Variance
Correct Answer: B
Rationale: The total static budget variance is simply the difference between the actual results and the original static (master) budget.
8. Which variance is calculated using the actual quantity purchased rather than the actual quantity used?
A. Materials Usage Variance
B. Materials Price Variance
C. Labor Rate Variance
D. Overhead Efficiency Variance
Correct Answer: B
Rationale: The materials price variance isolates the variance at the point of purchase to provide timely information to the purchasing manager.
9. A flexible budget is important for variance analysis because:
A. It ignores fixed costs
B. It allows comparison of actual costs to budgeted costs adjusted for the actual level of output
C. It is based on the original planned output level
D. It eliminates all variances
Correct Answer: B
Rationale: A flexible budget adjusts for actual activity, making variance analysis fair by comparing "apples to apples".
10. The formula (Actual Quantity - Standard Quantity) × Standard Price is used to calculate:
A. Materials Price Variance
B. Materials Usage Variance
C. Labor Rate Variance
D. Variable Overhead Spending Variance
Correct Answer: B
Rationale: This is the standard formula for the materials quantity (usage) variance.
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Section 2: Direct Materials Variances
11. The standard price is calculated using:
A. Actual market prices
B. Budgeted or expected prices
C. Last year's average price
D. The lowest price available
Correct Answer: B
Rationale: Standard prices are set based on expected or budgeted amounts, not necessarily current actual market fluctuations.
12. If the actual price per pound is $2.02 and the standard price is $2.00, the price variance per pound is:
A. $0.02 Favorable
B. $0.02 Unfavorable
C. $2.00 Unfavorable
D. $0.02 Neutral
Correct Answer: B
Rationale: Since the actual price paid is higher than the standard, the variance is unfavorable.
13. A company used 490,000 pounds of material and purchased 500,000 pounds. If the price variance is calculated at the point of purchase, which quantity should be used?
A. 490,000 pounds
B. 500,000 pounds
C. 10,000 pounds
D. The standard quantity
Correct Answer: B
Rationale: The price variance is calculated using the actual quantity purchased (500,000) to isolate the purchasing manager's performance.
14. An unfavorable materials usage variance indicates that:
A. The company paid more than standard for materials
B. The company used more materials than the standard allowed for the actual output
C. The company used less materials than standard
D. The company purchased inferior quality materials
Correct Answer: B
Rationale: An unfavorable usage variance means actual quantity used exceeded the standard quantity allowed.
15. If a company produces 160,000 units, each requiring 3 pounds of material at a standard cost of $2.00/lb, what is the standard quantity allowed for the actual output?
A. 150,000 pounds
B. 480,000 pounds
C. 490,000 pounds
D. 500,000 pounds
Correct Answer: B
Rationale: Standard Quantity = 160,000 units × 3 lbs/unit = 480,000 lbs.
16. Using the data from Question 15, if the actual quantity used was 490,000 pounds, the usage variance (in pounds) is:
A. 10,000 Favorable
B. 10,000 Unfavorable
C. 20,000 Unfavorable
D. 20,000 Favorable
Correct Answer: B
Rationale: Actual (490,000) - Standard (480,000) = 10,000 lbs. Using more than standard is Unfavorable.
17. In the calculation of the materials price variance, the "Actual Quantity" refers to:
A. Quantity allowed for actual production
B. Quantity actually used in production
C. Quantity actually purchased
D. Quantity in beginning inventory
Correct Answer: C
Rationale: The purchase price variance uses the quantity purchased to isolate the price impact at the time of acquisition.
18. A favorable materials price variance could be caused by:
A. Purchasing higher quality materials at a higher cost
B. Buying in bulk at a discount
C. Using more material than standard
D. An increase in market prices
Correct Answer: B
Rationale: Bulk purchasing often results in favorable price variances (discounts), though it may lead to unfavorable usage variances if the quality is lower.
19. If a company has an unfavorable materials usage variance, what is a likely cause?
A. The purchasing manager negotiated a lower price
B. Poor quality materials leading to waste
C. A decrease in the market price of raw materials
D. Highly skilled workers using less material
Correct Answer: B
Rationale: Unfavorable usage is often caused by waste, spoilage, or inefficient production, sometimes due to inferior raw materials.
20. The total direct materials variance is the sum of:
A. Price Variance and Usage Variance
B. Price Variance and Labor Rate Variance
C. Usage Variance and Overhead Variance
D. Static and Flexible variances
Correct Answer: A
Rationale: The total materials variance is composed of the price variance and the quantity (usage) variance.
21. Standard quantity for actual output is calculated as:
A. Actual production units × Standard quantity per unit
B. Actual production units × Actual quantity per unit
C. Budgeted production units × Standard quantity per unit
D. Budgeted production units × Actual quantity per unit
Correct Answer: A
Rationale: Standard quantity allowed is based on the actual volume of output achieved, multiplied by the standard input per unit.
**22. If the standard price is $3.60 and the standard quantity allowed is 110,000 lbs, but actual usage was 108,000 lbs, the usage variance is:**
A. $7,200 Unfavorable
B. $7,200 Favorable
C. $2,000 Favorable
D. $2,000 Unfavorable
Correct Answer: B
Rationale: (108,000 - 110,000) × $3.60 = (2,000) × $3.60 = $7,200 Favorable (used less than standard).
23. Which variance measures the difference between what was paid for materials and what should have been paid?
A. Materials Quantity Variance
B. Materials Price Variance
C. Labor Efficiency Variance
D. Overhead Volume Variance
Correct Answer: B
Rationale: The materials price variance isolates the cost difference per unit of material.
24. A company isolates its raw material price variance to provide the earliest possible information. The budgeted usage was 150,000 units × 3 lbs × $2.00. Actual: Produced 160,000 units, Purchased 500,000 lbs, Used 490,000 lbs, Cost $2.02/lb. The price variance is:
A. $9,600 U
B. $10,000 U
C. $9,800 U
D. $20,000 U
Correct Answer: B
Rationale: (Actual Price - Standard Price) × Actual Quantity Purchased = ($2.02 - $2.00) × 500,000 = $10,000 Unfavorable.
25. Using the data from Question 24, if the company calculated the price variance based on quantity used, the variance would be:
A. $9,600 U
B. $10,000 U
C. $9,800 U
D. $20,000 U
Correct Answer: C
Rationale: ($2.02 - $2.00) × 490,000 = $9,800 Unfavorable. Note the difference highlights why companies choose purchase vs. usage basis.
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Section 3: Direct Labor Variances
26. The formula (Actual Rate - Standard Rate) × Actual Hours is used to calculate:
A. Labor Efficiency Variance
B. Labor Rate Variance
C. Materials Price Variance
D. Overhead Spending Variance
Correct Answer: B
Rationale: This is the standard formula for the labor rate (price) variance.
27. A favorable direct labor efficiency variance indicates that:
A. Actual labor hours were greater than standard hours
B. Actual labor hours were less than standard hours
C. Actual rate was greater than standard rate
D. The company hired more workers than needed
Correct Answer: B
Rationale: Using fewer hours than expected results in a favorable efficiency variance.
28. If the actual labor rate is $11.70 and the standard rate is $12.00 for 28,000 hours, the rate variance is:
A. $8,400 Favorable
B. $8,400 Unfavorable
C. $6,000 Favorable
D. $6,000 Unfavorable
Correct Answer: A
Rationale: ($11.70 - $12.00) × 28,000 = ($0.30) × 28,000 = $8,400 Favorable.
**29. If actual hours are 28,000, standard hours allowed are 27,500, and the standard rate is $12.00, the efficiency variance is:**
A. $6,000 Unfavorable
B. $6,000 Favorable
C. $8,400 Unfavorable
D. $8,400 Favorable
Correct Answer: A
Rationale: (28,000 - 27,500) × $12.00 = 500 × $12 = $6,000 Unfavorable (used more hours than standard).
30. Which of the following would cause an unfavorable labor rate variance?
A. Using lower-skilled workers
B. An unexpected wage increase or overtime premium
C. Improving production methods
D. Using less material than standard
Correct Answer: B
Rationale: Paying a higher rate than standard (e.g., overtime) causes an unfavorable rate variance.
31. An unfavorable labor efficiency variance may be caused by:
A. A decrease in the standard wage rate
B. Poor quality materials causing additional work
C. A favorable materials price variance
D. Hiring highly skilled workers
Correct Answer: B
Rationale: Poor materials can cause delays and rework, leading to more labor hours than standard.
32. The standard hours allowed for actual production is calculated as:
A. Actual units produced × Standard hours per unit
B. Budgeted units × Standard hours per unit
C. Actual hours worked / Actual units
D. Standard rate × Actual hours
Correct Answer: A
Rationale: Standard hours allowed are based on the actual volume of output multiplied by the standard time per unit.
33. In variance analysis, the "efficiency variance" for labor is conceptually similar to which variance for materials?
A. Price Variance
B. Usage (Quantity) Variance
C. Mix Variance
D. Yield Variance
Correct Answer: B
Rationale: Efficiency for labor and Usage for materials both measure the quantity of input used relative to the standard allowed for actual output.
34. If a company has an unfavorable materials usage variance, this will likely cause:
A. A favorable labor efficiency variance
B. An unfavorable labor efficiency variance
C. A favorable labor rate variance
D. No impact on labor variances
Correct Answer: B
Rationale: Unfavorable materials usage (extra materials) often requires extra labor hours to handle and process, leading to unfavorable labor efficiency.
35. The labor rate variance is calculated using which quantity?
A. Standard hours allowed
B. Actual hours worked
C. Standard hours per unit
D. Total budgeted hours
Correct Answer: B
Rationale: Rate variance isolates the price difference on the actual hours worked.
36. A new labor contract signed prior to the budgeting cycle should result in:
A. A labor rate variance
B. No labor rate variance if the standard is updated
C. An unfavorable labor efficiency variance
D. A materials price variance
Correct Answer: B
Rationale: If the new rates are known and incorporated into the standard, there should be no variance for the rate change itself.
**37. If the standard rate is $12 and actual hours are 6,600 versus standard hours of 6,500, the efficiency variance is:**
A. $1,200 Favorable
B. $1,200 Unfavorable
C. $100 Unfavorable
D. $100 Favorable
Correct Answer: B
Rationale: (6,600 - 6,500) × $12 = 100 × $12 = $1,200 Unfavorable.
38. Which variance is sometimes referred to as the "labor quantity variance"?
A. Labor Rate Variance
B. Labor Efficiency Variance
C. Labor Mix Variance
D. Labor Yield Variance
Correct Answer: B
Rationale: Efficiency variance is the term for quantity variance in labor.
39. An unfavorable labor rate variance means:
A. The company used more hours than standard
B. The company paid more per hour than standard
C. The company produced fewer units than budgeted
D. The company used less hours than standard
Correct Answer: B
Rationale: Rate variance specifically measures the price paid per unit of labor.
40. A favorable labor efficiency variance means:
A. The company paid less per hour
B. The company used fewer hours than standard for the output produced
C. The company used more hours than standard
D. The company produced more units than budgeted
Correct Answer: B
Rationale: Efficiency is favorable when actual hours are less than the standard hours allowed for the actual output.
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Section 4: Variable Manufacturing Overhead Variances
41. The variable overhead spending variance is calculated as:
A. (Actual Rate - Standard Rate) × Actual Hours
B. (Actual Hours - Standard Hours) × Standard Rate
C. Actual Variable OH - Budgeted Variable OH at Actual Hours
D. Budgeted OH - Applied OH
Correct Answer: A
Rationale: The variable overhead spending (rate) variance compares the actual rate to the standard rate for the actual hours used.
42. The variable overhead efficiency variance measures:
A. The difference in the price paid for variable overhead items
B. The difference between actual hours and standard hours allowed, valued at the standard variable OH rate
C. The difference between actual fixed costs and budgeted fixed costs
D. The total variable cost variance
Correct Answer: B
Rationale: Variable OH efficiency variance is driven by the efficiency of the cost driver (usually labor hours).
43. A company applies variable overhead based on direct labor hours. If the labor efficiency variance is favorable, the variable overhead efficiency variance will likely be:
A. Unfavorable
B. Favorable
C. Neutral
D. Unaffected
Correct Answer: B
Rationale: If the company uses fewer labor hours (favorable labor efficiency), it will also apply less variable overhead based on those hours, leading to a favorable variable OH efficiency variance.
44. The variable overhead efficiency variance is calculated as:
A. (Actual Hours - Standard Hours) × Standard Variable OH Rate
B. (Actual Rate - Standard Rate) × Actual Hours
C. Actual Variable OH - Flexible Budget Variable OH
D. Static Budget - Flexible Budget
Correct Answer: A
Rationale: This is the standard formula for the variable OH efficiency variance.
45. Which of the following would cause an unfavorable variable overhead spending variance?
A. Using less electricity than expected
B. An increase in the cost of indirect materials
C. Using fewer labor hours than standard
D. A decrease in machine maintenance costs
Correct Answer: B
Rationale: Higher prices for variable overhead items (like indirect materials or utilities) cause an unfavorable spending variance.
46. If actual variable overhead is $39,360 and the standard variable OH rate is $4.00 per hour for 9,600 actual hours, the spending variance is:
A. $960 Favorable
B. $960 Unfavorable
C. $1,000 Favorable
D. $1,000 Unfavorable
Correct Answer: C
Rationale: Budgeted Variable OH at actual hours = 9,600 × $4.00 = $38,400. Actual = $39,360. Variance = $960 Unfavorable (Actual > Budget). *Correction: The correct answer should be Unfavorable ($960 U).* Let me adjust the options. Actually, the standard rate calculation in the source says the standard rate was $4.00 and the efficiency variance was $2,400 U. Let's check: Actual OH $39,360. If Std rate $4.00 and actual hours 9,600, budgeted = $38,400. $39,360 - $38,400 = $960 U. So the correct answer is B. **Correct Answer: B** (Rationale: $39,360 - $38,400 = $960 Unfavorable).
47. Variable overhead is typically applied to production based on:
A. Direct material dollars
B. Direct labor hours or machine hours
C. Units sold
D. Fixed asset values
Correct Answer: B
Rationale: Variable overhead costs are usually driven by activity measures like labor hours or machine hours.
48. A favorable variable overhead spending variance indicates:
A. Actual variable overhead costs were less than the flexible budget for actual hours
B. Actual hours were less than standard hours
C. Fixed costs were lower than expected
D. The company produced more units than planned
Correct Answer: A
Rationale: Spending variance is favorable when actual costs are lower than the budgeted amount for the actual activity level.
49. The variable overhead efficiency variance is unfavorable when:
A. Actual hours > Standard hours
B. Actual hours < Standard hours
C. Actual rate > Standard rate
D. Actual rate < Standard rate
Correct Answer: A
Rationale: Using more hours than standard (unfavorable labor efficiency) results in an unfavorable variable OH efficiency variance.
50. Which two variances make up the total variable overhead variance?
A. Price and Quantity
B. Spending and Efficiency
C. Budget and Volume
D. Rate and Usage
Correct Answer: B
Rationale: Total variable overhead variance = Spending Variance + Efficiency Variance.
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Section 5: Fixed Manufacturing Overhead Variances
51. The fixed overhead spending (budget) variance is:
A. The difference between budgeted fixed OH and applied fixed OH
B. The difference between actual fixed OH and budgeted fixed OH
C. The difference between actual hours and standard hours
D. The difference between actual variable costs and standard variable costs
Correct Answer: B
Rationale: The spending variance for fixed overhead is simply Actual - Budgeted.
52. The fixed overhead production volume variance measures:
A. The difference between actual and budgeted fixed costs
B. The difference between budgeted fixed overhead and applied fixed overhead
C. The efficiency of variable overhead usage
D. The variance in selling prices
Correct Answer: B
Rationale: The volume variance arises because fixed costs are applied based on a predetermined activity level, but actual volume may differ.
53. If a company produces less than the denominator activity level used to set the fixed overhead rate, the volume variance will be:
A. Favorable
B. Unfavorable
C. Zero
D. Cannot be determined
Correct Answer: B
Rationale: Producing less than budgeted volume means less fixed overhead is applied to products, resulting in an unfavorable volume variance.
54. The fixed overhead volume variance is calculated as:
A. (Actual Hours - Standard Hours) × Fixed OH Rate
B. Budgeted Fixed OH - Applied Fixed OH
C. Actual Fixed OH - Budgeted Fixed OH
D. Applied Fixed OH - Actual Fixed OH
Correct Answer: B
Rationale: Volume variance = Budgeted Fixed OH - (Standard Hours Allowed × Fixed OH Rate).
55. A favorable fixed overhead volume variance occurs when:
A. Actual fixed costs are less than budgeted
B. Actual production exceeds the denominator activity level
C. Actual production is less than the denominator activity level
D. Variable overhead is used efficiently
Correct Answer: B
Rationale: Producing more than expected applies more fixed overhead to products, creating a favorable variance.
56. Which of the following is a reason for an unfavorable fixed overhead spending variance?
A. An increase in property taxes or insurance premiums
B. Producing fewer units than planned
C. Using more direct labor hours
D. A decrease in the market price of materials
Correct Answer: A
Rationale: Fixed overhead spending variance is affected by changes in the actual costs of fixed items like taxes, insurance, or salaries.
57. The denominator activity level is used to calculate:
A. The standard variable overhead rate
B. The predetermined fixed overhead application rate
C. The standard quantity of materials
D. The standard labor rate
Correct Answer: B
Rationale: Budgeted fixed overhead is divided by the denominator activity (e.g., budgeted labor hours) to get the fixed OH application rate.
**58. If budgeted fixed overhead is $5,600,000 and the denominator activity is 160,000 units, the fixed OH rate per unit is:**
A. $35
B. $40
C. $350
D. $3.50
Correct Answer: A
Rationale: $5,600,000 / 160,000 = $35 per unit.
59. Using the data from Question 58, if the company produced 140,000 units, the volume variance is:
A. $700,000 Favorable
B. $700,000 Unfavorable
C. $800,000 Unfavorable
D. $800,000 Favorable
Correct Answer: B
Rationale: (140,000 - 160,000) × $35 = (20,000) × $35 = $700,000 Unfavorable (produced less than budget).
60. The fixed overhead volume variance is also known as the:
A. Spending variance
B. Capacity variance
C. Efficiency variance
D. Price variance
Correct Answer: B
Rationale: The volume variance relates to capacity utilization and is sometimes called the idle capacity variance.
61. A company with a favorable fixed overhead volume variance:
A. Spent less on fixed costs than budgeted
B. Operated at a level above its denominator activity
C. Used more materials than standard
D. Paid higher labor rates than standard
Correct Answer: B
Rationale: Favorable volume means actual activity exceeded the budgeted (denominator) level.
62. Total fixed overhead variance is the sum of:
A. Spending and Volume variances
B. Spending and Efficiency variances
C. Rate and Usage variances
D. Price and Quantity variances
Correct Answer: A
Rationale: Fixed OH variance = Spending Variance + Production Volume Variance.
63. Fixed overhead costs are typically:
A. Variable with production volume
B. Constant in total within the relevant range
C. Constant per unit
D. Directly traceable to specific units
Correct Answer: B
Rationale: By definition, fixed costs do not change in total with changes in activity within the relevant range.
64. If actual fixed overhead is $45,000 and budgeted fixed overhead is $40,000, the spending variance is:
A. $5,000 Favorable
B. $5,000 Unfavorable
C. $5,000 Neutral
D. Cannot be determined
Correct Answer: B
Rationale: Actual ($45,000) - Budget ($40,000) = $5,000 Unfavorable (spent more than budgeted).
65. Which variance is not applicable to fixed manufacturing overhead?
A. Spending Variance
B. Volume Variance
C. Efficiency Variance
D. Budget Variance
Correct Answer: C
Rationale: Efficiency variances measure input-output relationships, which do not apply to fixed costs that do not vary with output in the short run.
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Section 6: Sales Variances & Comprehensive Analysis
66. The sales price variance measures:
A. The difference between actual sales volume and budgeted sales volume
B. The difference between the actual selling price and the budgeted selling price
C. The difference in the cost of goods sold
D. The difference in variable overhead costs
Correct Answer: B
Rationale: Sales price variance isolates the impact of selling prices differing from expectations.
67. The sales volume variance is caused by:
A. Changes in selling prices
B. Differences between actual and budgeted sales quantities
C. Cost overruns in production
D. Changes in input efficiency
Correct Answer: B
Rationale: Volume variance reflects the impact of selling more or fewer units than budgeted.
68. If actual sales volume is 100,000 units and budgeted was 80,000 units, the sales volume variance is likely:
A. Unfavorable
B. Favorable
C. Neutral
D. Dependent on the price variance
Correct Answer: B
Rationale: Selling more units than budgeted generates a favorable volume variance (assuming positive contribution margin).
69. A company has a static budget profit of $24,000 and a flexible budget profit of $40,000 at actual volume. The sales volume variance is:
A. $16,000 Favorable
B. $16,000 Unfavorable
C. $4,000 Unfavorable
D. $20,000 Favorable
Correct Answer: A
Rationale: The sales volume variance is the difference between the static budget and flexible budget. $40,000 - $24,000 = $16,000 Favorable.
70. The static budget variance is $20,000 favorable. If the sales volume variance is $36,000 unfavorable, the flexible budget variance is:
A. $56,000 Favorable
B. $16,000 Unfavorable
C. $56,000 Unfavorable
D. $16,000 Favorable
Correct Answer: A
Rationale: Static Budget Variance = Flexible Budget Variance + Sales Volume Variance. $20,000 F = X + ($36,000 U) → X = $56,000 F.
71. Which of the following is a cause of a favorable sales price variance?
A. Selling products at a discount
B. A market-wide increase in prices
C. Selling fewer units than planned
D. Higher production costs
Correct Answer: B
Rationale: A favorable price variance occurs when the actual selling price is higher than the standard/budgeted price.
72. In a multi-product company, the sales mix variance measures:
A. The total sales volume variance
B. The impact of selling a different proportion of products than budgeted
C. The impact of selling at different prices
D. The impact of production inefficiencies
Correct Answer: B
Rationale: Mix variance isolates the effect of changing the product mix sold.
73. The sales quantity variance (in a multi-product setting) measures:
A. The effect of changes in total market size or company share
B. The effect of input mix
C. The effect of price changes
D. The effect of fixed costs
Correct Answer: A
Rationale: Quantity variance reflects the change in total units sold, holding mix constant.
74. If a company sells more of a high-margin product and less of a low-margin product than budgeted, the sales mix variance will be:
A. Unfavorable
B. Favorable
C. Neutral
D. Dependent on volume
Correct Answer: B
Rationale: Shifting the mix toward higher-margin products increases overall profit, resulting in a favorable mix variance.
75. Which variance would a sales manager be most concerned with?
A. Materials Usage Variance
B. Sales Price Variance and Sales Volume Variance
C. Labor Rate Variance
D. Fixed Overhead Volume Variance
Correct Answer: B
Rationale: Sales managers are responsible for revenues, including prices and volumes.
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Section 7: Advanced & Conceptual Variance Topics
76. The materials mix variance is calculated when:
A. Only one type of material is used
B. More than one type of material is used in production
C. Only one product is produced
D. Fixed costs are high
Correct Answer: B
Rationale: Mix variance is relevant when multiple inputs can be combined in different proportions.
77. The materials yield variance measures:
A. The difference between actual and standard mix
B. The difference between actual output and standard output from a given quantity of inputs
C. The difference between actual and standard prices
D. The difference between actual and budgeted fixed costs
Correct Answer: B
Rationale: Yield variance isolates the gain or loss in output resulting from the manufacturing process.
78. A favorable labor mix variance occurs when:
A. The company uses more lower-paid workers than standard
B. The company uses more higher-paid workers than standard
C. The company pays higher rates than standard
D. The company uses more hours than standard
Correct Answer: A
Rationale: Shifting the mix toward lower-cost labor reduces total cost, creating a favorable variance.
79. Which variance would be least likely to be investigated by management?
A. A large unfavorable materials price variance
B. A small favorable labor rate variance
C. A large unfavorable labor efficiency variance
D. A significant unfavorable sales volume variance
Correct Answer: B
Rationale: Management by exception focuses on significant variances; small favorable variances are typically ignored.
80. The sum of the materials price variance and materials usage variance equals:
A. Total labor variance
B. Total materials cost variance
C. Total overhead variance
D. Sales volume variance
Correct Answer: B
Rationale: Price + Usage = Total Materials Variance.
81. If a company has an unfavorable labor rate variance and a favorable labor efficiency variance, what is a possible explanation?
A. Using highly skilled (and higher paid) workers who work faster
B. Using low-skilled workers who waste materials
C. A decrease in market wages
D. An increase in production volume
Correct Answer: A
Rationale: Skilled workers command higher pay (unfavorable rate) but work more efficiently (favorable efficiency).
82. The "standard cost" of a product is best described as:
A. The actual cost incurred last period
B. A carefully predetermined cost based on expected efficiency and prices
C. The lowest possible cost achievable
D. The cost quoted by suppliers
Correct Answer: B
Rationale: Standards are predetermined targets based on engineering and operational expectations.
83. Ideal standards (perfection standards) are:
A. Based on currently attainable efficiency levels
B. Based on maximum efficiency under perfect conditions
C. Easily achievable by all workers
D. Updated monthly
Correct Answer: B
Rationale: Ideal standards assume no waste, downtime, or inefficiency, and are rarely met.
84. Currently attainable standards are:
A. Impossible to meet
B. Based on reasonable, efficient operating conditions
C. Always unfavorable
D. Only used for fixed costs
Correct Answer: B
Rationale: These standards allow for normal spoilage and downtime, providing a realistic target.
85. Which of the following is a reason to use standard costs?
A. To simplify record keeping and provide a basis for performance evaluation
B. To eliminate the need for actual cost tracking
C. To increase actual costs
D. To avoid variances
Correct Answer: A
Rationale: Standard costs simplify accounting and provide benchmarks for control.
86. If a variance is determined to be caused by a one-time event (e.g., a machine breakdown), it is most likely:
A. Prorated to inventory
B. Written off to Cost of Goods Sold immediately
C. Carried forward indefinitely
D. Ignored
Correct Answer: B
Rationale: Unusual or non-recurring variances are typically written off to COGS rather than allocated to inventory.
87. The purchase price variance is calculated at the point of purchase primarily to:
A. Delay reporting until materials are used
B. Provide timely information to the purchasing manager
C. Avoid calculating usage variance
D. Match costs with revenues
Correct Answer: B
Rationale: Calculating at purchase allows for immediate feedback on purchasing performance.
88. If the actual quantity of materials purchased exceeds the actual quantity used, the difference represents:
A. Materials waste
B. An increase in raw materials inventory
C. A favorable usage variance
D. Work in process
Correct Answer: B
Rationale: Purchased - Used = Change in Inventory (assuming no beginning inventory issues).
89. Which variance is calculated using the standard variable overhead rate?
A. Fixed Overhead Spending Variance
B. Variable Overhead Efficiency Variance
C. Sales Volume Variance
D. Materials Price Variance
Correct Answer: B
Rationale: Variable OH efficiency variance uses the standard rate to value the difference in hours.
**90. A company has a fixed overhead volume variance of $10,000 Unfavorable. This means:**
A. The company spent $10,000 more on fixed costs than budgeted
B. The company produced less than the denominator activity level
C. The company used more variable overhead than standard
D. The company had an unfavorable labor rate variance
Correct Answer: B
Rationale: An unfavorable volume variance indicates underutilization of capacity (producing less than planned).
91. The formula for the total materials variance is:
A. (Actual Quantity × Actual Price) - (Standard Quantity × Standard Price)
B. (Actual Price - Standard Price) × Actual Quantity
C. (Actual Quantity - Standard Quantity) × Standard Price
D. Actual Cost - Budgeted Cost
Correct Answer: A
Rationale: Total variance is actual total cost minus standard total cost allowed for actual output.
92. If a company produces 5,000 units, uses 16,000 lbs, and the standard is 3 lbs per unit at $4.00/lb, the standard quantity allowed is:
A. 15,000 lbs
B. 16,000 lbs
C. 5,000 lbs
D. 48,000 lbs
Correct Answer: A
Rationale: 5,000 units × 3 lbs = 15,000 lbs standard allowed.
**93. Using the data from Question 92, if actual cost is $62,400, the total materials variance is:**
A. $2,400 Favorable
B. $2,400 Unfavorable
C. $4,000 Unfavorable
D. $1,600 Favorable
Correct Answer: B
Rationale: Standard Cost = 15,000 × $4.00 = $60,000. Actual = $62,400. Variance = $2,400 Unfavorable.
94. Which of the following is not a manufacturing input variance?
A. Materials Price Variance
B. Labor Rate Variance
C. Sales Mix Variance
D. Variable Overhead Efficiency Variance
Correct Answer: C
Rationale: Sales mix variance relates to selling, not manufacturing inputs.
95. A favorable materials price variance might lead to an unfavorable materials usage variance if:
A. The company buys higher quality materials
B. The company buys lower quality materials at a cheaper price
C. The company buys in bulk
D. The market price drops
Correct Answer: B
Rationale: Cheaper materials may be of lower quality, causing waste or spoilage during production.
96. The responsibility for the variable overhead spending variance typically rests with:
A. The sales manager
B. The production manager and those responsible for overhead cost control
C. The CEO
D. The external auditors
Correct Answer: B
Rationale: Production managers control the usage of overhead items and related costs.
97. In a standard cost system, variances are closed to:
A. Retained Earnings only
B. Cost of Goods Sold and/or Inventory accounts
C. Sales Revenue
D. Accounts Payable
Correct Answer: B
Rationale: Variances are typically closed to COGS or allocated between COGS and inventory.
98. A company has a sales volume variance of $36,000 Unfavorable and a flexible budget variance of $56,000 Favorable. The static budget variance is:
A. $20,000 Favorable
B. $20,000 Unfavorable
C. $92,000 Favorable
D. $92,000 Unfavorable
Correct Answer: A
Rationale: Static Budget Variance = Flexible Budget Variance + Sales Volume Variance. $56,000 F + ($36,000 U) = $20,000 Favorable.
99. The term "standard quantity allowed" refers to:
A. The quantity of input that should have been used for the actual output
B. The quantity of input budgeted for the budgeted output
C. The quantity of input actually used
D. The quantity of input purchased
Correct Answer: A
Rationale: Standard quantity allowed is a flexible measure based on actual output achieved.
100. Variance analysis is most useful when:
A. Standards are unrealistic and outdated
B. Variances are investigated systematically and used for continuous improvement
C. All variances are ignored
D. Only unfavorable variances are calculated
Correct Answer: B
Rationale: The goal of variance analysis is to identify opportunities for improvement and corrective action, not just to calculate numbers.
