ACCA MA Standard costing: practice questions with answers

Question 1

Carlow Ltd makes product T. Each unit requires 4 kg of material at $3.50 per kg and 2.5 direct labour hours at $12.00 per hour. Variable overhead is $4.00 per direct labour hour. Budgeted fixed production overhead is $360,000 and budgeted output is 24,000 units. Fixed overhead is absorbed on a direct labour hour basis. What is the standard full production cost of one unit of T under absorption costing?

1. A $69.00
2. B $54.00
3. C $60.00
4. D $63.00

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Answer: A. - Budgeted labour hours = 24,000 × 2.5 = 60,000; fixed OAR = $360,000 / 60,000 = $6.00 per hour

| Standard cost card | $ |
|---|---|
| Direct materials (4 kg × $3.50) | 14.00 |
| Direct labour (2.5 hrs × $12.00) | 30.00 |
| Variable overhead (2.5 hrs × $4.00) | 10.00 |
| Standard marginal cost | 54.00 |
| Fixed overhead (2.5 hrs × $6.00) | 15.00 |
| Standard absorption cost | 69.00 |

Question 2

The standard material cost of product G at Dunmore Ltd is 3 kg at $6.00 per kg. In March, 5,200 units of G were produced. 16,400 kg of material were bought and used, at a total cost of $95,120. What were the material price and usage variances for March?

1. A Price $3,280 favourable; usage $4,640 adverse
2. B Price $3,120 favourable; usage $4,800 adverse
3. C Price $3,280 adverse; usage $4,800 favourable
4. D Price $3,280 favourable; usage $4,800 adverse

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Answer: D. - Actual price per kg = $95,120 / 16,400 = $5.80
- Price variance = (standard price − actual price) × actual quantity = ($6.00 − $5.80) × 16,400 = $3,280 F
- Standard quantity for actual output = 5,200 × 3 = 15,600 kg
- Usage variance = (standard quantity − actual quantity) × standard price = (15,600 − 16,400) × $6.00 = $4,800 A

Total material variance = $93,600 − $95,120 = $1,520 A, which equals the two variances combined. Cheaper material may have been of lower quality, causing the higher usage.

Question 3

Fordham Ltd uses standard absorption costing. Budgeted fixed production overhead is $240,000 and budgeted output is 12,000 units, each taking 2 standard labour hours. Fixed overhead is absorbed per labour hour. Actual output was 11,400 units, actual hours worked were 24,600 and actual fixed overhead was $246,000. What were the fixed overhead capacity and efficiency variances?

1. A Capacity $6,000 adverse; efficiency $18,000 favourable
2. B Capacity $6,000 favourable; efficiency $12,000 adverse
3. C Capacity $6,000 adverse; efficiency $18,000 adverse
4. D Capacity $6,000 favourable; efficiency $18,000 adverse

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Answer: D. - Budgeted hours = 12,000 × 2 = 24,000; OAR = $240,000 / 24,000 = $10.00 per hour
- Standard hours for actual output = 11,400 × 2 = 22,800

| Variance | Calculation | $ |
|---|---|---|
| Expenditure | 240,000 − 246,000 | 6,000 A |
| Capacity | (24,600 − 24,000) × 10.00 | 6,000 F |
| Efficiency | (22,800 − 24,600) × 10.00 | 18,000 A |
| Volume (capacity + efficiency) | (11,400 − 12,000) × 2 × 10.00 | 12,000 A |

The workforce worked more hours than budgeted (favourable capacity) but took longer than standard to make the actual output (adverse efficiency).

Question 4

Glenfield Ltd uses standard marginal costing. Budgeted sales of product V were 8,000 units at a standard selling price of $45.00. The standard variable cost is $27.00 per unit and the standard fixed production cost is $8.00 per unit. Actual sales were 8,600 units at $43.50 each. What were the sales price variance and the sales volume contribution variance?

1. A Price $12,900 adverse; volume $10,800 favourable
2. B Price $12,900 adverse; volume $6,000 favourable
3. C Price $12,000 adverse; volume $10,800 favourable
4. D Price $12,900 adverse; volume $27,000 favourable

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Answer: A. - Sales price variance = (actual price − standard price) × actual units = ($43.50 − $45.00) × 8,600 = $12,900 A
- Standard contribution per unit = $45.00 − $27.00 = $18.00
- Sales volume contribution variance = (actual units − budgeted units) × standard contribution = (8,600 − 8,000) × $18.00 = $10,800 F

Under absorption costing the volume variance would be valued at standard profit of $10.00, giving $6,000 F. The price cut may have helped generate the extra volume.

Question 5

Quenby Ltd uses standard absorption costing and absorbs fixed production overhead on a per-unit basis. Budgeted fixed overhead was $180,000 and budgeted output 9,000 units. Actual output was 9,450 units and actual fixed overhead was $186,300. What were the fixed overhead expenditure and volume variances?

1. A Expenditure $6,300 adverse; volume $9,000 favourable
2. B Expenditure $6,300 favourable; volume $9,000 adverse
3. C Expenditure $2,700 favourable; volume $9,000 favourable
4. D Expenditure $6,300 adverse; volume $8,871 favourable

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Answer: A. Standard absorption rate = 180,000 / 9,000 = $20 per unit.

- Expenditure variance = budgeted 180,000 − actual 186,300 = $6,300 A
- Volume variance = (actual output 9,450 − budgeted output 9,000) × $20 = $9,000 F

Check: overhead absorbed 9,450 × $20 = $189,000 − actual $186,300 = $2,700 over-absorbed (F) = $6,300 A + $9,000 F.

Question 6

Strand Fabrications uses standard absorption costing and absorbs fixed production overhead per machine hour. Budgeted fixed overhead was $312,000 and budgeted output was 13,000 units, each with a standard time of 1.5 machine hours. Actual output was 12,600 units, 20,100 machine hours were worked and actual fixed overhead was $309,500. What were the fixed overhead capacity and efficiency variances?

1. A Capacity $9,600 adverse; efficiency $19,200 adverse
2. B Capacity $9,600 favourable; efficiency $9,600 adverse
3. C Capacity $9,600 favourable; efficiency $28,800 adverse
4. D Capacity $9,600 favourable; efficiency $19,200 adverse

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Answer: D. - Budgeted machine hours = 13,000 x 1.5 = 19,500; absorption rate = $312,000 / 19,500 = $16 per machine hour
- Standard hours for actual output = 12,600 x 1.5 = 18,900

| Variance | Calculation | $ |
|---|---|---|
| Capacity | (actual hours 20,100 - budgeted hours 19,500) x $16 | 9,600 F |
| Efficiency | (standard hours 18,900 - actual hours 20,100) x $16 | 19,200 A |
| Volume | (12,600 - 13,000) units x $24 | 9,600 A |

The capacity and efficiency variances add up to the volume variance. (The expenditure variance, $312,000 - $309,500 = $2,500 F, is separate.)