1. If Actual Cost is LESS than Standard Cost, the Variance is termed as:
Adverse (Unfavorable)
Neutral
Abnormal
Favorable
Explanation:
Spending less than the standard (budgeted) amount increases profit, so it is a Favorable Variance.
2. Material Usage Variance is calculated as:
(Standard Price - Actual Price) * Actual Quantity
(Standard Cost - Actual Cost)
(Standard Quantity - Actual Quantity) * Standard Price
(Standard Quantity - Actual Quantity) * Actual 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 Hours specified for actual output and Actual Hours worked.
Budgeted Profit and Actual Profit.
Standard Material and Actual Material.
Standard Rate and Actual Rate.
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:
Budgeted Output and Actual Output.
Standard Hours allowed for Actual Output and Budgeted Hours.
Standard Fixed Overhead rate and Actual rate.
Actual Fixed Overhead and Budgeted Fixed Overhead.
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 Adverse
?1000 Adverse
?2000 Favorable
?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:
?20,000 Favorable
?10,000 Favorable
Zero
?20,000 Adverse
Explanation:
Sales Variance = Actual Sales - Budgeted Sales. Since actual revenue is higher than budgeted, it is Favorable.
7. Sales Volume Variance is favorable when:
Budgeted quantity is higher than actual quantity.
Actual cost is lower than standard cost.
Actual selling price is higher than standard selling price.
Actual quantity sold is higher than budgeted quantity.
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:
Adverse
Zero
Favorable
Not calculable
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:
Standard Fixed Overhead for Actual Output and Actual Fixed Overhead.
Budgeted Fixed Overhead and Actual Fixed Overhead.
Standard Rate and Actual Rate.
Standard Hours and Actual Hours.
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:
Zero.
Adverse.
Favorable.
Depends on output.
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
(Budgeted Overhead - Actual Overhead)
(Standard Rate - Actual Rate) × Actual Hours
Cannot be calculated.
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.
More than one type of material is used in the product mix.
Prices are stable.
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:
Average past performance.
Normal efficiency.
Maximum efficiency with no wastage or idle time.
Conditions expected to prevail in the future.
Explanation:
Ideal standards represent the best possible performance under perfect conditions. They are rarely achievable and are used more for motivation than actual control.