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.

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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.

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A standard which can be attained under the most favourable working conditions is called

A.Attainable Standard
B.Basic Standard
C.Current Standard
D.Ideal Standard

Exam Year(s)

UGC NET - 2013,

Answer: D

A standard that can be reached only under the most favourable working conditions is an ideal standard. It assumes no wastage, no idle time and no breakdown, and so it is a target that is rarely reached in practice.

An attainable standard allows for normal wastage and idle time. A basic standard is a base-year yardstick that stays unchanged for a long period, and a current standard is a standard for the present conditions. These are all reachable in practice, so they are wrong.

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Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R) :

Assertion (A) : Variance analysis is undertaken for planning and control of costs.
Reason (R) : Future costs are taken into consideration in budgeting and standard costing. In the above two statements, which one alternative of the following is correct ?
Codes :

A.Both (A) and (R) are correct and (R) is the Reason for (A).
B.Both (A) and (R) are correct and (R) is not the Reason for (A).
C.(A) is correct, but (R) is wrong.
D.(A) is wrong, but (R) is correct.

Exam Year(s)

UGC NET - 2013,

Answer: B

Both statements are correct, but the reason is not the explanation. Variance analysis is undertaken for planning and control of costs, by comparing actual cost with the standard, and future costs are considered in budgeting and standard costing. But the reason describes how the standards are set and not why variance analysis is done, as variance analysis looks at the past performance against those standards. So option B is correct. The standard is fixed before the period and the variance is found after it, so the two statements sit at different times.

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Which of the following is a subvariance of labour efficiency variance ?

A.Idle time variance
B.Labour-mix variance
C.Labour-yield variance
D.All of the above

Exam Year(s)

UGC NET - 2013,

Answer: D

All three are sub-variances of the labour efficiency variance, so the answer is D.

The efficiency variance of labour is analysed further into idle time, the mix of grades of labour used and the yield obtained from the input, and each of the three listed items is a part of that analysis according to the official key. Since each of A, B and C is listed, the option 'All of the above' is the one keyed. Idle time is the unproductive time paid for, and the mix and yield items describe the combination of grades of labour used and the output obtained, which is why all three are treated as parts of the study of labour efficiency in the key.

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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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