Variance Analysis MCQs
What is variance analysis in accounting?
a. A method used to analyze financial ratios
b. A technique to evaluate the profitability of a business
c. An analysis of the differences between actual and expected results
d. A process to calculate the net present value of a project
Answer: c. An analysis of the differences between actual and expected results
Which of the following is NOT a type of variance commonly analyzed in variance analysis?
a. Price variance
b. Quantity variance
c. Time variance
d. Efficiency variance
Answer: c. Time variance
Which variance measures the difference between the actual price paid for a product and the expected price?
a. Price variance
b. Quantity variance
c. Material variance
d. Labor variance
Answer: a. Price variance
The favorable or unfavorable difference between the actual quantity used and the expected quantity is known as:
a. Price variance
b. Quantity variance
c. Efficiency variance
d. Material variance
Answer: b. Quantity variance
What is the formula to calculate variance?
a. Actual – Expected
b. Expected – Actual
c. Actual + Expected
d. Actual / Expected
Answer: a. Actual – Expected
Variance Analysis MCQs
Which variance reflects the difference between the actual labor hours worked and the expected labor hours?
a. Price variance
b. Labor variance
c. Efficiency variance
d. Rate variance
Answer: c. Efficiency variance
Which of the following variances represents the difference between the actual cost incurred and the standard cost for direct materials used?
a. Direct materials price variance
b. Direct materials efficiency variance
c. Direct labor rate variance
d. Direct labor efficiency variance
Answer: a. Direct materials price variance
Variance analysis is commonly used in which management accounting technique?
a. Break-even analysis
b. Cost-volume-profit analysis
c. Budgeting and forecasting
d. Financial statement analysis
Answer: c. Budgeting and forecasting
Which variance measures the difference between the actual labor rate paid and the expected labor rate?
a. Efficiency variance
b. Rate variance
c. Labor variance
d. Productivity variance
Answer: b. Rate variance
The purpose of variance analysis is to:
a. Identify the causes of deviations from expected results
b. Determine the overall profitability of a business
c. Calculate the return on investment for a project
d. Assess the market share of a company
Answer: a. Identify the causes of deviations from expected results
Variance Analysis MCQs
Which variance represents the difference between the actual overhead costs incurred and the expected overhead costs?
a. Overhead efficiency variance
b. Overhead rate variance
c. Overhead spending variance
d. Overhead production variance
Answer: c. Overhead spending variance
Variance analysis is primarily used to:
a. Assess the liquidity of a business
b. Evaluate the solvency of a business
c. Monitor and control costs
d. Determine market share
Answer: c. Monitor and control costs
The variance analysis report is typically prepared by:
a. Human Resources department
b. Marketing department
c. Production department
d. Accounting department
Answer: d. Accounting department
Which of the following is an example of a fixed overhead variance?
a. Sales volume variance
b. Material price variance
c. Direct labor efficiency variance
d. Fixed overhead spending variance
Answer: d. Fixed overhead spending variance
The difference between the actual sales revenue and the budgeted sales revenue is known as:
a. Sales price variance
b. Sales volume variance
c. Sales revenue variance
d. Sales mix variance
Answer: c. Sales revenue variance
Variance Analysis MCQs
Variance analysis helps management to:
a. Identify potential investment opportunities
b. Measure employee productivity
c. Evaluate the financial health of a business
d. Control costs and improve performance
Answer: d. Control costs and improve performance
The formula to calculate labor variance is:
a. Actual labor cost – Expected labor cost
b. Actual labor hours – Expected labor hours
c. Actual labor rate – Expected labor rate
d. Actual labor efficiency – Expected labor efficiency
Answer: a. Actual labor cost – Expected labor cost
The variance analysis technique is commonly used in which type of budgeting?
a. Zero-based budgeting
b. Capital budgeting
c. Flexible budgeting
d. Activity-based budgeting
Answer: c. Flexible budgeting
Which variance reflects the difference between the actual selling price and the expected selling price per unit?
a. Selling price variance
b. Sales mix variance
c. Sales quantity variance
d. Sales revenue variance
Answer: a. Selling price variance
Variance analysis is an important tool for:
a. Evaluating the financial performance of competitors
b. Calculating the return on investment for shareholders
c. Identifying areas of improvement and making informed decisions
d. Assessing the market demand for a product
Answer: c. Identifying areas of improvement and making informed decisions
Variance Analysis MCQs
Which of the following variances measures the difference between the actual production output and the expected production output?
a. Production volume variance
b. Production efficiency variance
c. Production cost variance
d. Production capacity variance
Answer: b. Production efficiency variance
A favorable variance indicates that the actual results are:
a. Higher than expected
b. Lower than expected
c. Equal to the expected
d. Irrelevant to the expected
Answer: a. Higher than expected
The variance analysis process involves comparing actual results to:
a. Historical data
b. Competitor’s results
c. Industry benchmarks
d. Budgeted or expected results
Answer: d. Budgeted or expected results
Which of the following variances is associated with the difference between the actual overhead costs incurred and the overhead costs allocated based on standard rates?
a. Overhead spending variance
b. Overhead rate variance
c. Overhead efficiency variance
d. Overhead volume variance
Answer: b. Overhead rate variance
The formula to calculate material variance is:
a. Actual quantity used – Expected quantity used
b. Actual price paid – Expected price paid
c. Actual cost incurred – Expected cost incurred
d. Actual usage rate – Expected usage rate
Answer: c. Actual cost incurred – Expected cost incurred
Variance Analysis MCQs
Which variance measures the difference between the actual direct labor cost incurred and the expected direct labor cost?
a. Labor rate variance
b. Labor efficiency variance
c. Labor spending variance
d. Labor production variance
Answer: a. Labor rate variance
Variance analysis is commonly used in which performance evaluation method?
a. Return on investment (ROI)
b. Balanced scorecard
c. Economic value added (EVA)
d. Activity-based costing (ABC)
Answer: b. Balanced scorecard
The difference between the actual quantity of materials used and the expected quantity of materials is known as:
a. Material efficiency variance
b. Material spending variance
c. Material usage variance
d. Material production variance
Answer: c. Material usage variance
Variance analysis can help management in identifying:
a. Customer preferences
b. Cash flow issues
c. Potential risks
d. Pricing strategies
Answer: c. Potential risks
Which of the following statements is true about variance analysis?
a. It is only applicable to manufacturing companies.
b. It focuses solely on financial variances.
c. It provides insights into the causes of variances.
d. It replaces the need for budgeting.
Answer: c. It provides insights into the causes of variances.
Variance Analysis MCQs
Which variance represents the difference between the actual sales quantity and the expected sales quantity?
a. Sales volume variance
b. Sales price variance
c. Sales revenue variance
d. Sales mix variance
Answer: a. Sales volume variance
Variance analysis helps management in evaluating the:
a. Profit margin of a business
b. Market share of a product
c. Efficiency of production processes
d. Capital structure of a company
Answer: c. Efficiency of production processes
The difference between the actual production time and the expected production time is known as:
a. Time variance
b. Efficiency variance
c. Capacity variance
d. Production variance
Answer: a. Time variance
Which of the following variances reflects the difference between the actual direct labor hours worked and the expected direct labor hours?
a. Labor efficiency variance
b. Labor rate variance
c. Labor spending variance
d. Labor volume variance
Answer: a. Labor efficiency variance
Variance analysis is most commonly used in which phase of the management accounting process?
a. Planning and budgeting
b. Financial reporting
c. Cost allocation
d. Performance evaluation
Answer: d. Performance evaluation
Variance Analysis MCQs
The variance analysis report typically includes:
a. Details of every transaction during the period
b. Comparisons to industry benchmarks
c. Recommendations for cost reduction
d. Explanations for significant variances
Answer: d. Explanations for significant variances
The difference between the actual cost of direct materials used and the expected cost is known as:
a. Material efficiency variance
b. Material price variance
c. Material usage variance
d. Material spending variance
Answer: d. Material spending variance
Variance analysis helps management in:
a. Assessing the company’s liquidity position
b. Calculating the return on investment
c. Identifying deviations from the budgeted plan
d. Monitoring the stock market performance
Answer: c. Identifying deviations from the budgeted plan
Which variance measures the difference between the actual cost of direct labor and the expected cost of direct labor?
a. Labor spending variance
b. Labor rate variance
c. Labor efficiency variance
d. Labor production variance
Answer: a. Labor spending variance
Variance analysis is based on the assumption that variances are caused by:
a. External factors beyond management’s control
b. Random chance events
c. Inaccurate budgeting process
d. Specific factors and actions within the company’s control
Answer: d. Specific factors and actions within the company’s control