1. If Actual Cost is LESS than Standard Cost, the Variance is termed as:
Adverse (Unfavorable)
Favorable
Abnormal
Neutral
Explanation:
Spending less than the standard (budgeted) amount increases profit, so it is a Favorable Variance.
2. Material Usage Variance is calculated as:
(Standard Quantity - Actual Quantity) * Actual Price
(Standard Price - Actual Price) * Actual Quantity
(Standard Cost - Actual Cost)
(Standard Quantity - Actual Quantity) * Standard Price
Explanation:
Usage Variance isolates the efficiency of material use. It compares quantities allowed (Standard) vs used (Actual), valued at the standard price.
3. Labor Efficiency Variance arises due to the difference between:
Standard Rate and Actual Rate.
Budgeted Profit and Actual Profit.
Standard Material and Actual Material.
Standard Hours specified for actual output and Actual Hours worked.
Explanation:
Efficiency Variance measures productivity. If workers take more time (Actual Hours) than allowed (Standard Hours) to produce the output, the variance is Adverse.
4. Fixed Overhead Volume Variance arises due to the difference between:
Actual Fixed Overhead and Budgeted Fixed Overhead.
Standard Fixed Overhead rate and Actual rate.
Budgeted Output and Actual Output.
Standard Hours allowed for Actual Output and Budgeted Hours.
Explanation:
Volume variance arises when actual production volume differs from budgeted volume. If actual production is higher, fixed costs are over-absorbed (Favorable).
5. If Actual Price is ?12, Standard Price is ?10, and Actual Quantity is 1000 units, the Material Price Variance is:
?2000 Favorable
?2000 Adverse
?1000 Adverse
?200 Adverse
Explanation:
Formula: (Standard Price - Actual Price) * Actual Quantity. (10 - 12) * 1000 = -2 * 1000 = -2000. Since actual price is higher, it is Adverse.
6. If Actual Sales are ?1,20,000 and Budgeted Sales are ?1,00,000, the Sales Value Variance is:
?10,000 Favorable
?20,000 Adverse
?20,000 Favorable
Zero
Explanation:
Sales Variance = Actual Sales - Budgeted Sales. Since actual revenue is higher than budgeted, it is Favorable.
7. Sales Volume Variance is favorable when:
Actual selling price is higher than standard selling price.
Budgeted quantity is higher than actual quantity.
Actual quantity sold is higher than budgeted quantity.
Actual cost is lower than standard cost.
Explanation:
Sales Volume Variance measures the impact of the difference between actual quantity sold and budgeted quantity. If a firm sells more units than planned (Actual Qty > Budgeted Qty), it generates more revenue/profit, resulting in a Favorable variance, regardless of the price difference (which is Price Variance).
8. If workers are paid at a higher rate than the standard rate, the Labor Rate Variance will be:
Favorable
Adverse
Not calculable
Zero
Explanation:
Paying more than the planned (standard) rate increases costs, which reduces profit. Hence, it is an Adverse variance. Formula: (Standard Rate - Actual Rate) * Actual Hours.
9. Fixed Overhead Cost Variance is the difference between:
Budgeted Fixed Overhead and Actual Fixed Overhead.
Standard Rate and Actual Rate.
Standard Hours and Actual Hours.
Standard Fixed Overhead for Actual Output and Actual Fixed Overhead.
Explanation:
This variance measures the over or under-absorption of fixed overheads based on the actual output achieved versus what was actually spent.
10. Labor Idle Time Variance is always:
Depends on output.
Zero.
Favorable.
Adverse.
Explanation:
Idle time represents hours paid for but not worked (due to power failure, machine breakdown, etc.). Since this is a cost without production, it always results in an Adverse variance.
11. Variable Overhead Efficiency Variance is calculated as:
(Standard Hours - Actual Hours) × Standard Variable Overhead Rate
(Standard Rate - Actual Rate) × Actual Hours
Cannot be calculated.
(Budgeted Overhead - Actual Overhead)
Explanation:
This variance arises because the actual hours taken to produce the output differ from the standard hours allowed, affecting the absorption of variable overheads.
12. Material Mix Variance is relevant when:
Standard cost equals actual cost.
Only one type of material is used.
Prices are stable.
More than one type of material is used in the product mix.
Explanation:
Mix variance calculates the cost impact of changing the ratio/proportion of different materials used (e.g., using more cheap material A and less expensive material B).
13. An "Ideal Standard" assumes:
Conditions expected to prevail in the future.
Average past performance.
Maximum efficiency with no wastage or idle time.
Normal efficiency.
Explanation:
Ideal standards represent the best possible performance under perfect conditions. They are rarely achievable and are used more for motivation than actual control.