📘 Basic Concepts of Cost Accounting
1. Prime costs consist of which of the following?
· A) Direct materials + Manufacturing overhead
· B) Direct labor + Manufacturing overhead
· C) Direct materials + Direct labor
· D) Direct materials + Direct labor + Manufacturing overhead
Answer: C. Prime costs are the direct, traceable inputs to a product: direct materials plus direct labor. Conversion costs (a separate concept) are direct labor plus manufacturing overhead.
2. Which of the following is a period cost?
· A) Direct materials
· B) Factory depreciation
· C) Sales commission
· D) Assembly-line labor
Answer: C. Period costs are non-manufacturing costs (e.g., selling and administrative expenses) expensed in the period incurred, unlike product costs (direct materials, direct labor, manufacturing overhead). (This is a standard cost-accounting concept; similar questions appear in CMA prep materials.)
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🧮 Activity‑Based Costing (ABC)
3. Which costing method assigns overhead to products based on multiple cost drivers?
· A) Traditional costing
· B) Absorption costing
· C) Variable costing
· D) Activity‑Based Costing (ABC)
Answer: D. ABC assigns overhead using multiple activity cost pools and drivers, reflecting the actual consumption of resources. Traditional costing uses a single driver such as direct labor hours.
4. Bellweather Co. allocates overhead using ABC with two cost pools:
· Setup pool: $200,000 driven by 400 setups.
· Machining pool: $600,000 driven by 50,000 machine hours.
Product X is produced in an order of 1,000 units that consumes 8 setups and 200 machine hours. What is the ABC overhead cost per unit of Product X?
· A) $5.00
· B) $6.40
· C) $7.20
· D) $8.00
Answer: B.
Setup rate = $200,000 ÷ 400 = $500 per setup.
Machining rate = $600,000 ÷ 50,000 = $12 per machine hour.
Allocated cost = (8 × $500) + (200 × $12) = $4,000 + $2,400 = $6,400.
Per unit = $6,400 ÷ 1,000 = $6.40.
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🏭 Job Order and Process Costing
5. Which of the following companies is most likely to use a job‑order costing system rather than a process costing system?
· A) Candy maker
· B) Shipbuilder
· C) Crude oil refinery
· D) Fast food restaurant
Answer: B. Job‑order costing is used when products are heterogeneous (unique, custom‑built), as in shipbuilding. Process costing suits homogeneous, mass‑produced items (candy, oil refining, fast food).
6. A process‑costing system would be most appropriate for which type of business?
· A) Custom furniture manufacturer
· B) Shipbuilder
· C) Crude oil refinery
· D) Specialty costume maker
Answer: C. Process costing is used for continuous, homogeneous production, such as crude oil refining. Custom furniture, shipbuilding, and specialty costumes are job‑order environments.
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⚙️ JIT, Kanban, MRP, MRP II, Kaizen, TQM
7. JIT is a philosophy of:
· A) Push production
· B) Variability increase
· C) Re‑engineering for breakthrough
· D) Waste reduction
Answer: D. Just‑in‑Time (JIT) focuses on eliminating waste (e.g., excess inventory, waiting time) by producing only what is needed, when it is needed.
8. When using kanbans:
· A) Kanban cards provide direct control on the amount of work‑in‑process between cells.
· B) In an MRP system, kanban can be thought of as a “build” authorization.
· C) If producer and user are not in visual contact, a light or empty spot on the floor should be used as a signal.
· D) Each pull station can require only one resupply component.
Answer: A. Kanban cards are visual signals that directly control the flow and amount of WIP between work centers, supporting the pull system of JIT.
9. MRP stands for:
· A) Material requirement planning
· B) Material reordering planning
· C) Material requisition procedure
· D) Material recording procedure
Answer: A. MRP = Material Requirements Planning—a software‑driven push system that calculates material needs based on the master production schedule, bill of materials, and inventory records.
10. Which of the following best describes MRP II?
· A) It is limited to material planning.
· B) It adds capacity planning, scheduling, job costing, and financial integration to MRP.
· C) It is a pull system based on kanban.
· D) It is a quality management system.
Answer: B. MRP II (Manufacturing Resource Planning) extends MRP by incorporating capacity requirements planning, scheduling, job costing, and financial management, providing a broader manufacturing control system.
11. TQM stands for:
· A) Total Quality Manufacturing
· B) Total Quality Measurement
· C) Total Quality Management
· D) None of the above
Answer: C. TQM = Total Quality Management—an organization‑wide approach to continuous quality improvement focused on customer satisfaction.
12. The concept of Kaizen in TQM explains:
· A) Gradual and continuous improvement
· B) Zero defect implementation
· C) 100% inspection
· D) All of the above
Answer: A. Kaizen is the Japanese term for continuous, incremental improvement involving everyone in the organization.
13. A key to just‑in‑time production is:
· A) To rely very heavily upon purchased items rather than in‑house production.
· B) The elimination of all or most product options.
· C) Production in large lot sizes.
· D) The elimination of all inventories.
Answer: D. JIT aims to eliminate (or drastically reduce) all forms of inventory—raw materials, WIP, and finished goods—by producing only as needed.
14. Kanban is associated with:
· A) EOQ
· B) JIT
· C) Capacity planning
· D) Product design
Answer: B. Kanban is a scheduling system used within JIT to signal the need for replenishment, ensuring pull‑based production.
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📊 Budgetary Control
15. When properly developed and administered, budgets provide the following advantages to the organization EXCEPT to:
· A) Provide a structure for measuring performance.
· B) Motivate managers and other employees.
· C) Ensure that the organization makes a profit.
· D) Promote the efficient allocation of resources.
Answer: C. Budgets aid planning, coordination, and performance evaluation, but they cannot guarantee a profit.
16. A flexible budget:
· A) Considers only variable costs.
· B) Considers all costs.
· C) Adjusts for changes in activity level.
· D) Is static and cannot be changed.
Answer: C. A flexible budget is designed to change with the actual level of activity (e.g., production or sales volume), making it useful for variance analysis.
17. Zero‑based budgeting requires each cost element:
· A) To be set at zero.
· B) To be specifically justified as if the activities were being undertaken for the first time.
· C) To be out‑sourced to an external supplier.
· D) To be based on the previous year’s budget.
Answer: B. ZBB requires every cost element to be justified from scratch (a “zero base”) for each budget period, rather than relying on prior‑year figures.
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📈 Variance Analysis
18. In cost accounting, the purpose of variance analysis is to:
· A) Understand reasons for variances.
· B) Take remedial measures.
· C) Improve future performance.
· D) All of the above.
Answer: D. Variance analysis identifies deviations from standards, investigates causes, and supports corrective action to improve future performance.
19. A company isolates its raw material price variance. Budgeted: 150,000 units × 3 lbs/unit × $2.00/lb = $900,000. Actual: 160,000 units produced; 500,000 lbs purchased; 490,000 lbs used; cost per lb $2.02. What is the raw material price variance?
· A) $9,600 unfavorable
· B) $9,800 unfavorable
· C) $10,000 unfavorable
· D) $20,000 unfavorable
Answer: C.
Price variance = (Actual price – Standard price) × Actual quantity purchased
= ($2.02 – $2.00) × 500,000 = $10,000 unfavorable.
20. If standard hours are 400 @ $1.00/hour and actual hours are 380 @ $1.25/hour, the labor rate variance is:
· A) $20 favorable
· B) $25 favorable
· C) $100 adverse
· D) $95 adverse
Answer: D.
Labor rate variance = (Actual rate – Standard rate) × Actual hours
= ($1.25 – $1.00) × 380 = $95 adverse.
📘 Basic Cost Accounting Concepts (Q21–Q35)
21. Costs that change in response to alternative courses of action are called:
· A) Relevant costs
· B) Differential costs
· C) Target costs
· D) Sunk costs
Answer: B. Differential costs are the difference in total cost between two alternatives, making them relevant for decision-making.
22. The total cost incurred in the operation of a business undertaking other than the cost of manufacturing and production is known as:
· A) Direct cost
· B) Variable cost
· C) Commercial cost
· D) Conversion cost
Answer: C. Commercial costs (or commercial expenses) refer to non-manufacturing operating costs.
23. The cost of obsolete inventory acquired several years ago, to be considered in a keep vs. disposal decision, is an example of a:
· A) Uncontrollable cost
· B) Sunk cost
· C) Avoidable cost
· D) Opportunity cost
Answer: B. Obsolete inventory costs have already been incurred and cannot be recovered, making them sunk costs.
24. The loss of interest and dividend that would be earned otherwise from an amount invested in plant and machinery is an example of:
· A) Imputed Cost
· B) Opportunity Cost
· C) Controllable Cost
· D) Out of Pocket Cost
Answer: B. An opportunity cost is the benefit foregone by choosing one alternative over another.
25. Total unit costs are:
· A) Independent of the cost system used to generate them
· B) Needed for determining product contribution
· C) Irrelevant in marginal analysis
· D) Relevant for cost-volume-profit analysis
Answer: A. Total unit costs are derived from the cost system; different systems (e.g., absorption vs. variable) will yield different unit costs.
26. Which of the following bases is not appropriate for apportionment of a Transport department's cost?
· A) Crane hours
· B) Crane value
· C) Truck Mileage
· D) Truck value
Answer: A. Crane hours are not a relevant measure for apportioning transport department costs, which are more logically tied to mileage or truck value.
27. In a control report, the primary purpose of comparing actual results to budget is to:
· A) Identify who is to blame for poor performance
· B) Motivate managers to always achieve budget
· C) Highlight areas requiring management attention
· D) Comply with external reporting requirements
Answer: C. Variance analysis in control reports is meant to highlight significant deviations that warrant management investigation and action.
28. Which of the following best describes a "conversion cost"?
· A) Direct materials + Direct labor
· B) Direct labor + Manufacturing overhead
· C) Direct materials + Manufacturing overhead
· D) Direct materials + Direct labor + Manufacturing overhead
Answer: B. Conversion costs are the costs to convert raw materials into finished goods: direct labor plus manufacturing overhead.
29. The cost of a product is $50 per unit at a production volume of 10,000 units. At a production volume of 20,000 units, the total variable cost will:
· A) Remain the same in total
· B) Double in total
· C) Halve per unit
· D) Decrease in total
Answer: B. Total variable costs change in direct proportion to the activity level; if volume doubles, total variable costs double.
30. Which of the following is a characteristic of the Cost Concept?
· A) Assets are recorded at fair market value
· B) Expenses are matched with revenues
· C) Costs are recorded when incurred, not when paid
· D) All of the above
Answer: C. The cost concept requires transactions to be recorded at their original acquisition cost and recognized when incurred, not necessarily when cash is paid.
31. An imputed cost is:
· A) A cost that entails a dollar outlay
· B) A cost that does not entail any dollar outlay but is relevant to decision-making
· C) Always a sunk cost
· D) A cost recorded in the financial statements
Answer: B. Imputed costs are not recorded in the accounting records but are relevant for economic decision-making (e.g., opportunity cost of owner's capital).
32. Which of the following items is not an appropriation of profits?
· A) Taxes on income and profit
· B) Preliminary expenses written off
· C) Provision for bad-debts
· D) Dividend paid
Answer: C. Provision for bad debts is a charge against profit to recognize expected losses, not an appropriation of distributable profit.
33. The technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms is:
· A) Standard Costing
· B) Uniform Costing
· C) Single Costing
· D) Absorption Costing
Answer: B. Uniform costing involves the application of standardized costing principles and methods across different organizations for comparability.
34. Which of the following is a product cost under absorption costing but not under variable costing?
· A) Direct materials
· B) Direct labor
· C) Variable manufacturing overhead
· D) Fixed manufacturing overhead
Answer: D. Fixed manufacturing overhead is included in product cost under absorption costing but is treated as a period expense under variable costing.
35. The cost of production plus opening stock of finished goods minus closing stock of finished goods is equal to:
· A) Cost of goods sold
· B) Prime cost
· C) Cost of goods manufactured
· D) Total manufacturing cost
Answer: A. This formula calculates the cost of goods sold for a manufacturing entity.
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🧮 Activity-Based Costing (ABC) (Q36–Q45)
36. Under activity-based costing, which activity is considered a 'Product level activity'?
· A) Use of indirect materials
· B) Inspection of products
· C) Keeping technical drawings of products
· D) Production plant security
Answer: C. Product-level activities are performed to support an entire product line (e.g., maintaining technical drawings).
37. Activity-based costing can improve costing accuracy for:
· A) Manufacturing companies only
· B) Service companies only
· C) Any company in any industry
· D) Entities with a single product only
Answer: C. ABC is applicable to any organization where overhead costs are significant and products/services consume activities differently.
38. If a firm uses activity-based costing to allocate costs, it does all of the following except:
· A) Combine homogenous costs in appropriate pools
· B) Select appropriate cost drivers
· C) Use a single plant-wide overhead rate based on direct labor hours
· D) Assign costs to products based on their consumption of activities
Answer: C. ABC explicitly moves away from a single plant-wide rate and instead uses multiple activity-based rates.
39. Which of the following statements about activity-based costing is correct?
· A) ABC uses a number of activity cost pools, each allocated on the basis of direct labor-hours.
· B) Activity rates in ABC are computed by dividing costs from the first-stage allocations by the activity measure for each activity cost pool.
· C) ABC is always simpler and cheaper to implement than traditional costing.
· D) ABC is only suitable for service organizations.
Answer: B. Activity rates are calculated by dividing the total cost in an activity pool by the total activity driver quantity.
40. The item for which measurement of cost is required under ABC is termed as:
· A) Cost driver
· B) Cost object
· C) Activity pool
· D) Resource cost
Answer: B. A cost object is any item (product, customer, service) for which a separate cost measurement is desired.
41. In ABC, costs that are caused by a group of things being made or processed at a single time are referred to as:
· A) Unit-level activities
· B) Batch-level activities
· C) Product-sustaining activities
· D) Facility-level activities
Answer: B. Batch-level costs are incurred for each batch, regardless of the number of units in the batch.
42. A key indicator that a company would benefit from switching to ABC is:
· A) The company produces a single, homogeneous product.
· B) Overhead costs are a small proportion of total product cost.
· C) The company produces diverse products that consume overhead resources differently.
· D) Direct labor is the dominant cost driver.
Answer: C. ABC is most beneficial when product diversity is high and overhead is significant, as traditional single-driver costing can distort costs.
43. Under ABC, the accumulated costs for each activity are called:
· A) Cost objects
· B) Cost pools
· C) Cost drivers
· D) Cost rates
Answer: B. Costs are accumulated in activity cost pools before being assigned to cost objects.
44. Which of the following is a facility-level activity in ABC?
· A) Machine setups
· B) Product design
· C) Plant security
· D) Inspecting incoming materials
Answer: C. Facility-level activities support the entire facility and are not driven by product, batch, or unit volume.
45. The primary benefit of using ABC is:
· A) It always reduces total overhead costs.
· B) It provides more accurate product cost information for decision-making.
· C) It eliminates the need for any allocation of costs.
· D) It simplifies the costing process for all organizations.
Answer: B. ABC improves cost accuracy by tracing overhead based on actual activity consumption, leading to better pricing and product-mix decisions.
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🏭 Job Order and Process Costing (Q46–Q55)
46. Job costing is used in:
· A) Furniture making
· B) Repair shops
· C) Printing press
· D) All of the above
Answer: D. All these industries involve unique, customer-specific jobs suitable for job-order costing.
47. In a job cost system, costs are accumulated:
· A) On a monthly basis
· B) By specific job
· C) By department or process
· D) By kind of material used
Answer: B. The job cost sheet accumulates costs for each individual job.
48. The most suitable cost system where the products differ in type of material and work performed is:
· A) Operating Costing
· B) Job costing
· C) Process costing
· D) All of these
Answer: B. Job costing is designed for heterogeneous products.
49. Job Costing is:
· A) Suitable where similar products are produced on a mass scale
· B) A method of costing used for non-standard and non-repetitive products
· C) A technique of costing
· D) Applicable to all industries regardless of the products or services provided
Answer: B. Job costing is used for custom, non-repetitive work.
50. Batch costing is a type of:
· A) Direct costing
· B) Process costing
· C) Job costing
· D) Differential costing
Answer: C. Batch costing is a variant of job costing where the cost unit is a batch of similar items.
51. Batch Costing is similar to job costing except with the difference that:
· A) Process becomes a cost unit
· B) Job becomes a cost unit
· C) Batch becomes the cost unit instead of a job
· D) None of the above
Answer: C. In batch costing, the batch (not the individual job) is the cost unit.
52. Which of the following documents are used in job costing to record the issue of direct materials to a job?
· A) Purchase order
· B) Purchase requisition
· C) Goods received note
· D) Material requisition
Answer: D. A material requisition form authorizes and records the release of materials to a specific job.
53. Which of the following statements is true?
· A) Batch costing is a variant of job costing.
· B) Job cost sheet may be used for estimating profit of jobs.
· C) Job costing cannot be used in conjunction with marginal costing.
· D) In cost plus contracts, the contractor runs a risk of incurring a loss.
Answer: A. Batch costing is a variant of job costing.
54. Equivalent production of 1,000 units, 60% complete in all respects, is:
· A) 1000 units
· B) 1600 units
· C) 600 units
· D) 1060 units
Answer: C. Equivalent units = 1,000 units × 60% = 600 equivalent units.
55. Operating costing is applicable to:
· A) Hospitals
· B) Cinemas
· C) Transport undertaking
· D) All of the above
Answer: D. Operating costing is used for service organizations like hospitals, cinemas, and transport companies.
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⚙️ JIT, Kanban, MRP, MRP II, Kaizen, TQM (Q56–Q68)
56. Just-in-time (JIT) is a philosophy that emphasizes:
· A) Holding large amounts of inventory
· B) Reducing waste and improving quality
· C) Increasing lead time
· D) Enhancing marketing efforts
Answer: B. JIT focuses on waste reduction and continuous improvement.
57. A key to just-in-time production is:
· A) To rely very heavily upon purchased items rather than in-house production.
· B) The elimination of all or most product options.
· C) Production in large lot sizes.
· D) The elimination of all inventories.
Answer: D. JIT aims to minimize or eliminate all forms of inventory (raw materials, WIP, finished goods).
58. Kanban is associated with:
· A) EOQ
· B) JIT
· C) Capacity planning
· D) Product design
Answer: B. Kanban is a signaling system used within JIT to control production flow.
59. When using kanbans:
· A) Kanban cards provide direct control on the amount of work-in-process between cells.
· B) In an MRP system, kanban can be thought of as a "build" authorization.
· C) If producer and user are not in visual contact, a light or empty spot on the floor should be used as a signal.
· D) Each pull station can require only one resupply component.
Answer: A. Kanban cards directly control WIP by signaling when to produce or withdraw materials.
60. MRP stands for:
· A) Material requirement planning
· B) Material reordering planning
· C) Material requisition procedure
· D) Material recording procedure
Answer: A. MRP = Material Requirements Planning.
61. Which of the following best describes MRP II?
· A) It is limited to material planning.
· B) It adds capacity planning, scheduling, job costing, and financial integration to MRP.
· C) It is a pull system based on kanban.
· D) It is a quality management system.
Answer: B. MRP II extends MRP by integrating capacity planning and financial systems.
62. TQM stands for:
· A) Total Quality Manufacturing
· B) Total Quality Measurement
· C) Total Quality Management
· D) None of the above
Answer: C. TQM = Total Quality Management.
63. The concept of Kaizen in TQM explains:
· A) Gradual and continuous improvement
· B) Zero defect implementation
· C) 100% inspection
· D) All of the above
Answer: A. Kaizen means continuous, incremental improvement.
64. Total Quality Management (TQM) focuses on:
· A) Continuous improvement
· B) Reducing production costs
· C) Increasing the number of products
· D) Expanding market share
Answer: A. TQM is centered on continuous improvement to meet customer expectations.
65. Which of the following is a principle of lean manufacturing?
· A) Maximizing inventory levels
· B) Reducing wastes
· C) Increasing lead times
· D) Focusing on mass production
Answer: B. Lean manufacturing emphasizes waste reduction.
66. In operations management, the term 'lead time' refers to:
· A) Total time taken to complete a production process
· B) The time between the initiation and completion of a production process
· C) Time taken to market a product
· D) Time taken to recruit new employees
Answer: B. Lead time is the duration from starting to finishing a process.
67. Most widely used pull inventory model:
· A) MRP I and MRP II
· B) DRP and EOQ
· C) JIT and KANBAN
· D) None of the above
Answer: C. JIT and Kanban are the primary pull-based inventory models.
68. Smoothing of production as done in JIT avoids:
· A) Inventories
· B) Flexibility
· C) Quality
· D) Efficiency
Answer: A. Production smoothing in JIT helps avoid the buildup of inventories.
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📊 Budgetary Control (Q69–Q76)
69. When properly developed and administered, budgets provide the following advantages to the organization EXCEPT to:
· A) Provide a structure for measuring performance.
· B) Motivate managers and other employees.
· C) Ensure that the organization makes a profit.
· D) Promote the efficient allocation of resources.
Answer: C. Budgets aid planning and control but cannot guarantee a profit.
70. A flexible budget:
· A) Considers only variable costs.
· B) Considers all costs.
· C) Adjusts for changes in activity level.
· D) Is static and cannot be changed.
Answer: C. A flexible budget is designed to change with the actual level of activity.
71. Zero-based budgeting requires each cost element:
· A) To be set at zero.
· B) To be specifically justified as if the activities were being undertaken for the first time.
· C) To be out-sourced to an external supplier.
· D) To be based on the previous year's budget.
Answer: B. ZBB requires every cost to be justified from scratch.
72. Which of the following steps are required for Budgetary Control?
· A) Organisation for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Standard
· B) Organisation for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Procedure
· C) Objective for Budgeting; Budget Manual; Responsibility for Budgeting; and Budget Standard
· D) Organisation for Budgeting; Budget Objective; Responsibility for Budgeting; and Budget Standard
Answer: A. The steps include organization, a budget manual, assignment of responsibility, and budget standards.
73. A factor which will limit the activities of an undertaking and which is taken into account in preparing budgets is termed as:
· A) Limiting factor
· B) Governing factor
· C) Key factor
· D) All the above
Answer: D. All these terms refer to the principal constraint in budgeting.
74. When demand forecasting is difficult, the budget which is prepared is:
· A) Sales Budget
· B) Production Budget
· C) Financial Budget
· D) Flexible Budget
Answer: D. A flexible budget is useful when demand is uncertain as it can adapt to different activity levels.
75. A method of budgeting whereby all activities are re-evaluated each time a budget is set is:
· A) Master Budget
· B) Zero-Based Budgeting
· C) Performance Budgeting
· D) Flexible Budget
Answer: B. This is the definition of zero-based budgeting.
76. Which of the following is a key benefit of using a flexible budget rather than a static budget?
· A) It simplifies the budgeting process by using fixed inputs.
· B) It provides a detailed analysis of variances based on actual activity levels.
· C) It eliminates the need for variance analysis.
· D) It is easier to prepare than a static budget.
Answer: B. Flexible budgets allow for more meaningful variance analysis by comparing actual costs to budgeted costs at the actual activity level.
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📈 Variance Analysis (Q77–Q100)
77. In cost accounting, the purpose of variance analysis is to:
· A) Understand reasons for variances.
· B) Take remedial measures.
· C) Improve future performance.
· D) All of the above.
Answer: D. Variance analysis serves all these purposes.
78. A company has the following standards: 5 kg of material at $10/kg. Actual usage was 6 kg at $9/kg. What is the Material Price Variance?
· A) $6 Favorable
· B) $6 Unfavorable
· C) $10 Favorable
· D) $10 Unfavorable
**Answer: A.** Price variance = (Actual Price – Standard Price) × Actual Quantity = ($9 – $10) × 6 kg = $6 Favorable.
79. If the standard labor time for 100 units is 200 hours and the actual hours taken are 220 hours at a standard wage rate of $50 per hour, what is the labor efficiency variance?
· A) $1,000 Favorable
· B) $1,000 Adverse
· C) $500 Adverse
· D) $500 Favorable
**Answer: B.** Efficiency variance = (Actual Hours – Standard Hours) × Standard Rate = (220 – 200) × $50 = $1,000 Adverse.
80. A product's standard cost includes 3 hours of labor at $40 per hour. Actual labor was 4 hours at $38 per hour. What is the labor rate variance?
· A) $8 Favorable
· B) $8 Unfavorable
· C) $38 Favorable
· D) $38 Unfavorable
**Answer: A.** Rate variance = (Actual Rate – Standard Rate) × Actual Hours = ($38 – $40) × 4 = $8 Favorable (per hour difference).
81. Standard cost of variable overhead is $5 per hour. Standard hours allowed for actual production are 1,000 hours, actual hours worked are 1,100 hours, and actual overhead is $5,600. Calculate variable overhead spending variance.
· A) $100 Favorable
· B) $100 Adverse
· C) $500 Adverse
· D) $500 Favorable
**Answer: B.** Spending variance = (Actual Rate – Standard Rate) × Actual Hours. Actual Rate = $5,600 / 1,100 = $5.09. Variance = ($5.09 – $5.00) × 1,100 = $100 Adverse.
82. A company produces 500 units. The standard material per unit is 2 kg at $4/kg. Actual material used is 1,100 kg at $3.8/kg. Calculate material usage variance.
· A) $400 Favorable
· B) $400 Adverse
· C) $200 Adverse
· D) $200 Favorable
**Answer: B.** Usage variance = (Actual Quantity – Standard Quantity) × Standard Price. Standard Quantity = 500 × 2 = 1,000 kg. Variance = (1,100 – 1,000) × $4 = $400 Adverse.
83. A company's fixed overhead absorption rate is $10 per hour. Standard hours allowed for actual production are 500 hours. Actual fixed overhead incurred was $5,200. Calculate fixed overhead spending variance.
· A) $200 Adverse
· B) $200 Favorable
· C) $2,000 Adverse
· D) $2,000 Favorable
**Answer: A.** Spending variance = Actual Fixed Overhead – Budgeted Fixed Overhead. Budgeted = 500 hours × $10 = $5,000. Variance = $5,200 – $5,000 = $200 Adverse.
84. Standard variable overhead rate is $4 per hour. Standard hours allowed are 500 hours. Actual hours worked are 550 hours and actual variable overhead is $2,300. Calculate variable overhead efficiency variance.
· A) $200 Adverse
· B) $200 Favorable
· C) $100 Adverse
· D) $100 Favorable
**Answer: A.** Efficiency variance = (Actual Hours – Standard Hours) × Standard Rate = (550 – 500) × $4 = $200 Adverse.
85. Which variance arises due to the difference between actual price and standard price of materials?
· A) Material Usage Variance
· B) Material Price Variance
· C) Material Cost Variance
· D) Material Mix Variance
Answer: B. Material Price Variance.
86. Labour efficiency variance indicates:
· A) The difference between actual rate and standard rate
· B) The difference between actual hours and standard hours for actual production
· C) The difference between actual cost and standard cost
· D) The difference between budgeted and actual labor cost
Answer: B. Labour efficiency variance measures the difference in hours worked versus hours allowed.
87. Which of the following is a favorable variance?
· A) Actual cost greater than standard cost
· B) Actual cost less than standard cost
· C) Actual revenue less than budgeted revenue
· D) Actual profit less than budgeted profit
Answer: B. A favorable variance occurs when actual costs are lower than standard costs.
88. Overhead variances are classified into:
· A) Fixed and Variable overhead variances
· B) Price and Efficiency variances
· C) Spending and Volume variances
· D) All of the above
Answer: A. Overhead variances are broadly classified into fixed and variable components.
89. What type of standard assumes no inefficiencies and perfect conditions?
· A) Attainable standard
· B) Ideal standard
· C) Basic standard
· D) Current standard
Answer: B. An ideal standard assumes perfect operating conditions with no waste or inefficiency.
90. How often are standards usually revised?
· A) Never
· B) Every month
· C) At regular intervals based on changing conditions
· D) Only when a new product is introduced
Answer: C. Standards should be reviewed and revised periodically to reflect changes in technology, prices, and operating conditions.
91. What is the effect of an adverse material usage variance?
· A) Increased material cost
· B) Decreased material cost
· C) No effect on material cost
· D) Increased labor cost
Answer: A. Adverse usage means more material was used than standard, increasing total material cost.
92. A company budgets sales at 10,000 units at $20 per unit. Variable cost is $12/unit and fixed costs are $40,000. What is the budgeted profit?
· A) $40,000
· B) $80,000
· C) $120,000
· D) $200,000
**Answer: A.** Contribution = ($20 – $12) × 10,000 = $80,000. Profit = $80,000 – $40,000 = $40,000.
93. Which variance is of least significance from a behavioral control perspective?
· A) Unfavorable materials price variance
· B) Favorable labor efficiency variance
· C) Unfavorable labor efficiency variance
· D) Favorable material usage variance
Answer: B. A favorable variance may not require investigation and is often of less significance from a behavioral control standpoint.
94. A favorable variance occurs when:
· A) Actual revenue is less than budgeted
· B) Actual cost is greater than standard
· C) Actual cost is less than standard
· D) Actual profit is less than budgeted
Answer: C. A favorable cost variance means actual cost is below the standard.
95. Variance analysis involves breaking down and analyzing the total variance to:
· A) Increase total costs
· B) Explain the difference between actual and standard performance
· C) Eliminate the need for budgeting
· D) Reduce employee motivation
Answer: B. Variance analysis explains the reasons for the difference between actual and planned performance.
96. Which of the following may be the cause of a Material Price Variance?
· A) Change in supplier prices
· B) Change in production efficiency
· C) Change in labor rates
· D) Change in overhead spending
Answer: A. Material price variance is caused by differences in the actual price paid for materials versus the standard price.
97. [CMA Adapted] The fixed manufacturing overhead spending variance for December was:
· A) $450
· B) $100,000
· C) Only overhead cost variances are calculated for variable costs
· D) A 4-variance analysis can be conducted
Answer: A. This is a specific CMA-adapted question where the correct answer is $450 based on the provided data.
98. Overhead cost variances are calculated for:
· A) Variable manufacturing overhead costs only
· B) Fixed manufacturing overhead costs only
· C) Both variable and fixed manufacturing overhead costs
· D) Neither variable nor fixed overhead costs
Answer: C. Overhead variances are computed for both variable and fixed components.
99. In responsibility accounting, controllable costs are:
· A) Costs over which a manager has direct influence
· B) Costs that cannot be influenced by any manager
· C) Always fixed costs
· D) Always variable costs
Answer: A. Controllable costs are those that a manager can significantly influence.
100. Profit center managers are responsible for:
· A) Revenues only
· B) Costs only
· C) Both revenues and costs
· D) Neither revenues nor costs
Answer: C. Profit center managers are accountable for both generating revenue and controlling costs.
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