MANAGERIAL ACCOUNTING : VARIANCE ANALYSIS & PRACTICE
PROBLEMS 2026–2027 STUDY GUIDE— 100-QUESTION
COMPREHENSIVE EXAMINATION
Managerial Accounting / Cost Accounting
Exam coverage:
• Section 1: Standard Costing and Variance Analysis
Fundamentals (Questions 1–25): Standard costs, favorable
vs. unfavorable variances, basic materials and labor
variances, management by exception.
• Section 2: Direct Materials and Direct Labor Variances
(Questions 26–50): Detailed calculation of price, quantity,
rate, and efficiency variances; responsibility accounting.
• Section 3: Overhead Variances (Questions 51–75): Variable
and fixed overhead variances; two-, three-, and four-variance
methods; budget and volume variances.
• Section 4: Sales Variances and Advanced Topics
(Questions 76–100): Sales price, volume, mix, and quantity
variances; qualitative factors; limitations of variance analysis.
Section 1: Standard Costing and Variance Analysis
Fundamentals (Questions 1–25)
,Question 1: A company uses a standard costing system. Which
of the following best describes a standard cost?
A. The actual cost incurred in the previous period
B. A carefully predetermined measure of what a cost should be
under efficient operating conditions
C. The maximum price a company is willing to pay for materials
D. The average cost of all units produced during the period
CORRECT ANSWER: B
RATIONALE: A standard cost is a predetermined benchmark
representing what a cost should be under efficient operating
conditions. It is used for planning, control, and performance
evaluation. Option A describes a historical cost. Option C
describes a price limit. Option D describes an average cost,
which is not a standard.
Question 2: Which of the following is the primary purpose of
variance analysis?
A. To assign blame for poor performance
B. To identify deviations from standards and take corrective
action
C. To eliminate the need for budgeting
D. To guarantee that all costs are minimized
,CORRECT ANSWER: B
RATIONALE: Variance analysis compares actual results to
standards to identify deviations, their causes, and
responsibility, enabling corrective action. Option A is incorrect
because the purpose is improvement, not blame. Option C is
incorrect because variance analysis complements budgeting.
Option D is incorrect because not all variances can or should be
eliminated.
Question 3: A favorable variance occurs when:
A. Actual revenue is less than budgeted revenue
B. Actual costs are greater than standard costs
C. Actual revenue exceeds budgeted revenue or actual costs
are less than standard costs
D. Actual results equal standard results
CORRECT ANSWER: C
RATIONALE: A favorable variance means actual results are
better than expected: higher revenue or lower costs. Option A
describes an unfavorable revenue variance. Option B describes
an unfavorable cost variance. Option D describes no variance.
, Question 4: Which of the following is a possible cause of an
unfavorable direct materials price variance?
A. Purchasing materials in bulk at a discount
B. Using higher-quality materials than specified
C. A decrease in market prices for materials
D. Rush orders requiring expedited shipping
CORRECT ANSWER: D
RATIONALE: An unfavorable price variance means the actual
price paid was higher than standard. Rush orders with
expedited shipping increase the price. Options A and C would
result in favorable price variances. Option B may affect quality
but not necessarily price.
Question 5: A company has a standard direct materials cost of
$8 per unit (2 pounds at $4 per pound). Actual production was
1,000 units, using 2,200 pounds at $3.80 per pound. What is the
direct materials price variance?
A. $440 favorable
B. $440 unfavorable
C. $400 favorable
D. $400 unfavorable
CORRECT ANSWER: A
PROBLEMS 2026–2027 STUDY GUIDE— 100-QUESTION
COMPREHENSIVE EXAMINATION
Managerial Accounting / Cost Accounting
Exam coverage:
• Section 1: Standard Costing and Variance Analysis
Fundamentals (Questions 1–25): Standard costs, favorable
vs. unfavorable variances, basic materials and labor
variances, management by exception.
• Section 2: Direct Materials and Direct Labor Variances
(Questions 26–50): Detailed calculation of price, quantity,
rate, and efficiency variances; responsibility accounting.
• Section 3: Overhead Variances (Questions 51–75): Variable
and fixed overhead variances; two-, three-, and four-variance
methods; budget and volume variances.
• Section 4: Sales Variances and Advanced Topics
(Questions 76–100): Sales price, volume, mix, and quantity
variances; qualitative factors; limitations of variance analysis.
Section 1: Standard Costing and Variance Analysis
Fundamentals (Questions 1–25)
,Question 1: A company uses a standard costing system. Which
of the following best describes a standard cost?
A. The actual cost incurred in the previous period
B. A carefully predetermined measure of what a cost should be
under efficient operating conditions
C. The maximum price a company is willing to pay for materials
D. The average cost of all units produced during the period
CORRECT ANSWER: B
RATIONALE: A standard cost is a predetermined benchmark
representing what a cost should be under efficient operating
conditions. It is used for planning, control, and performance
evaluation. Option A describes a historical cost. Option C
describes a price limit. Option D describes an average cost,
which is not a standard.
Question 2: Which of the following is the primary purpose of
variance analysis?
A. To assign blame for poor performance
B. To identify deviations from standards and take corrective
action
C. To eliminate the need for budgeting
D. To guarantee that all costs are minimized
,CORRECT ANSWER: B
RATIONALE: Variance analysis compares actual results to
standards to identify deviations, their causes, and
responsibility, enabling corrective action. Option A is incorrect
because the purpose is improvement, not blame. Option C is
incorrect because variance analysis complements budgeting.
Option D is incorrect because not all variances can or should be
eliminated.
Question 3: A favorable variance occurs when:
A. Actual revenue is less than budgeted revenue
B. Actual costs are greater than standard costs
C. Actual revenue exceeds budgeted revenue or actual costs
are less than standard costs
D. Actual results equal standard results
CORRECT ANSWER: C
RATIONALE: A favorable variance means actual results are
better than expected: higher revenue or lower costs. Option A
describes an unfavorable revenue variance. Option B describes
an unfavorable cost variance. Option D describes no variance.
, Question 4: Which of the following is a possible cause of an
unfavorable direct materials price variance?
A. Purchasing materials in bulk at a discount
B. Using higher-quality materials than specified
C. A decrease in market prices for materials
D. Rush orders requiring expedited shipping
CORRECT ANSWER: D
RATIONALE: An unfavorable price variance means the actual
price paid was higher than standard. Rush orders with
expedited shipping increase the price. Options A and C would
result in favorable price variances. Option B may affect quality
but not necessarily price.
Question 5: A company has a standard direct materials cost of
$8 per unit (2 pounds at $4 per pound). Actual production was
1,000 units, using 2,200 pounds at $3.80 per pound. What is the
direct materials price variance?
A. $440 favorable
B. $440 unfavorable
C. $400 favorable
D. $400 unfavorable
CORRECT ANSWER: A
