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.

 

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

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

.

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

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

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

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

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

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

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

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

.

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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

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

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

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

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

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

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

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

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

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

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

**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

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

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

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

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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

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

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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

**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

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

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

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

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

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

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

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

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**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

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

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

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

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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

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

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

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

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

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

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

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

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

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: 

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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

.

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

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

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

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

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:

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: 

**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

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

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: 

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

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

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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

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

65. Which variance is not applicable to fixed manufacturing overhead?

A. Spending Variance

B. Volume Variance

C. Efficiency Variance

D. Budget Variance

Correct Answer: 

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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

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

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: 

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: 

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: 

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

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

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

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

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

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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

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.

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

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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

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

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

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

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

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

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

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

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

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

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

**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

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

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

**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

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

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

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

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

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

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: 

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: