Question

1. Standard costing provides which of the following?

1. Targets and measures of performance
2. Information for budgeting
3. Simplification of inventory control systems
4. Actual future costs

1. (i), (ii) and (iii) only
2. (ii), (iii) and (iv) only
3. (i), (iii) and (iv) only
4. (i), (ii) and (iv) only

2. A company has budgeted to make and sell 4,200 units of product X during the period.

The standard fixed overhead cost per unit is $4.

During the period covered by the budget, the actual results were as follows.

Production and sales 5,000 units

Fixed overhead incurred $17,500

The fixed overhead variances for the period were

Fixed overhead Fixed overhead

expenditure variance volume variance

1. $700 (F)   $3,200 (F)
2. $700 (F)   $3,200 (A)
3. $700 (A) $3,200 (F)
4. $700 (A) $3,200 (A)

3. Which of the following statements is correct?

1. An adverse direct material cost variance will always be a combination of an adverse material pricevariance and an adverse material usage variance
2. An adverse direct material cost variance will always be a combination of an adverse material pricevariance and a favourable material usage variance
3. An adverse direct material cost variance can be a combination of a favourable material price varianceand a favourable material usage variance
4. An adverse direct material cost variance can be a combination of a favourable material price varianceand an adverse material usage variance

Answer 1

1. Standard costing provides which of the following?

(i) Targets and measures of performance

(ii) Information for budgeting

(iii) Simplification of inventory control systems

(iv)Actual future costs

Correct answer is option 1. (i), (ii) and (iii) statements

Standard costing does not give the Actual future costs. since the budgets are prepared before the beginning of the period and is an estimation of costs. Budget is prepared taking into consideration of all the factors prevalent in the market.

Standard Costing will provide Targets and measures of performance before the start of the period.

Standard Costing will also provide Information for budgeting.

Standard costing simplifies the inventory control systems.

Question:

A company has budgeted to make and sell 4,200 units of product X during the period.

The standard fixed overhead cost per unit is $4.

Budgeted fixed overhead = Budgeted sales units x standard fixed overhead cost per unit = 4,200 units x $4 = $16,800

During the period covered by the budget, the actual results were as follows.

Production and sales 5,000 units

Fixed overhead incurred $17,500

Recovered fixed overhead = 5,000 units x $4 per unit = $20,000

Fixed overhead expenditure variance = Budgeted fixed overhead - Actual Fixed overhead

= $16,800 - $17,500 = $700 (A) Adverse

Fixed overhead volume variance = Recovered fixed overhead - Budgeted fixed overhead

= $20,000 - $16,800 = $3,200 (F) Favorable

Correct answer is Option C $700 (A) $3,200 (F)

Question:

1. Which of the following statements is correct?

A. An adverse direct material cost variance will always be a combination of an adverse material pricevariance and an adverse material usage variance.

B. An adverse direct material cost variance will always be a combination of an adverse material pricevariance and a favourable material usage variance.

C. An adverse direct material cost variance can be a combination of a favourable material price varianceand a favourable material usage variance.

D. An adverse direct material cost variance can be a combination of a favourable material price varianceand an adverse material usage variance.

Correct answer is Option A. An adverse direct material cost variance will always be a combination of an adverse material pricevariance and an adverse material usage variance

Explanation: Direct material cost variance = Direct material price variance + Direct material usage variance

If both the direct material price and usage variances are adverse, then only it will results in Adverse cost variance.

If one variance is favorable and one variance is unfavorable, If the favorable variance is lower than the unfavorable variance, then also it results in adverese direct material cost variance.

If one variance is favorable and one variance is unfavorable, If the favorable variance is higher than the unfavorable variance, then it results in favorable direct material cost variance.

Therefore to a higher side, if both the direct material price and usage variances are adverse, then Direct material cost variance will result in adverse variance.