Standard Costing and Variance Analysis Questions and Answers

Q: The difference between standard cost of standard hours and standard cost of actual hours is called as .................. .

The difference is the labour efficiency variance.Valuing both the standard hours and the actual hours at the standard rate isolates the effect of using more or fewer hours than allowed:\[ \text{LEV} = SR \times (SH - AH) \]where SR is the standard rate, SH the standard hours for actual output and AH the actual hours worked. It is favourable when workers take fewer hours than the standard.The labour rate variance compares rates, \(AH \times (SR - AR)\). The labour cost variance is the total of rate and efficiency variances, and the labour mix variance compares the actual and standard mix of grades of labour.

Q: Standard cost is developed by :

The keyed answer is Adjusting price level changes in the prices of material and labour etc.A standard cost is a predetermined cost of what a unit should cost under efficient conditions. It is built up from standard quantities of material, labour and overhead multiplied by standard prices, and those prices are set by taking current prices of material and labour and adjusting them for the price-level changes expected in the coming period.The other options do not build up a cost. Adding a profit margin to actual cost gives a cost-plus selling price; interpolating the market price with expected profit, or adjusting the market price, works from selling price rather than from the inputs of material and labour.

Q: The material price variance arises because of .................. .

A material price variance can arise from loss of cash discount.The variance is (standard price - actual price) × actual quantity, so it reflects only what was paid per unit. Causes include a change in market price, buying in uneconomic lots, emergency purchases, a change in freight, and losing a cash or quantity discount, which raises the effective price paid.The other causes affect quantity, not price. A non-standard mixture produces a mix variance, while pilferage and careless use of material produce an adverse usage (quantity) variance.

The difference between standard cost of standard hours and standard cost of actual hours is called as .................. .

A.Labour rate variance
B.Labour cost variance
C.Labour efficiency variance
D.Labour mix variance

Exam Year(s)

MH SET - 2018, SET Exam - 2018,

Answer: C

The difference is the labour efficiency variance.

Valuing both the standard hours and the actual hours at the standard rate isolates the effect of using more or fewer hours than allowed:

\[ \text{LEV} = SR \times (SH - AH) \]

where SR is the standard rate, SH the standard hours for actual output and AH the actual hours worked. It is favourable when workers take fewer hours than the standard.

The labour rate variance compares rates, \(AH \times (SR - AR)\). The labour cost variance is the total of rate and efficiency variances, and the labour mix variance compares the actual and standard mix of grades of labour.

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Standard cost is developed by :

A.Adjusting price level changes in the prices of material and labour etc
B.Interpolating the market price with the expected profit
C.Adding the profit margin to actual cost
D.Incorporating price level changes in market price

Exam Year(s)

MH SET - 2021, SET Exam - 2021,

Answer: A

The keyed answer is Adjusting price level changes in the prices of material and labour etc.

A standard cost is a predetermined cost of what a unit should cost under efficient conditions. It is built up from standard quantities of material, labour and overhead multiplied by standard prices, and those prices are set by taking current prices of material and labour and adjusting them for the price-level changes expected in the coming period.

The other options do not build up a cost. Adding a profit margin to actual cost gives a cost-plus selling price; interpolating the market price with expected profit, or adjusting the market price, works from selling price rather than from the inputs of material and labour.

Discuss in Forum

The material price variance arises because of .................. .

A.Non-standard material mixture
B.Pilferage of materials
C.Loss of cash discount
D.Carelessness in the use of material

Exam Year(s)

MH SET - 2023, SET Exam - 2023,

Answer: C

A material price variance can arise from loss of cash discount.

The variance is (standard price - actual price) × actual quantity, so it reflects only what was paid per unit. Causes include a change in market price, buying in uneconomic lots, emergency purchases, a change in freight, and losing a cash or quantity discount, which raises the effective price paid.

The other causes affect quantity, not price. A non-standard mixture produces a mix variance, while pilferage and careless use of material produce an adverse usage (quantity) variance.

Discuss in Forum

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Standard Costing and Variance Analysis Questions and Answers

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Standard Costing and Variance Analysis Questions and Answers

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