Edexcel A-Level Accounting: Standard costing (YAC11) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

Topic 2.5, Standard costing, is the focus here, from the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018: outcomes 2.5.1 to 2.5.6, Unit 2 (A2) only. Companies and numbers are made up and money is in dollars. Label every variance F or A.

Full method: the study guide. Also: course page, YAC11 checklist, free diagnostics.

Questions

1. State two purposes of a standard costing system. [2]

2. Explain the term management by exception as it applies to variance analysis. [2]

3. Hemsby Bakeware Ltd’s standard for one roasting tray is 3 kg of steel sheet at 6.00 per kg. In June it made 2,000 trays, using 6,300 kg of steel sheet that cost 36,540.

Calculate the material price, material usage and total material variances. [5]

4. Lumsden Boots Ltd’s standard for one pair of boots is 0.75 labour hours at 16.00 per hour. In May it made 4,800 pairs. Staff worked 3,450 hours and were paid 56,925.

(a) Calculate the labour rate, labour efficiency and total labour variances. [5] (b) Suggest one cause that could explain both the rate and the efficiency variance. [2]

5. Blaxhall Pumps Ltd budgeted fixed overheads of 84,000 for an output of 12,000 pumps and absorbs them at a standard rate per pump. Its standard variable overhead is 3.20 per pump. Actual output was 11,500 pumps. Actual fixed overheads were 83,100 and actual variable overheads 37,950.

(a) Calculate the total fixed overhead variance and the total variable overhead variance. [4] (b) Explain why the fixed overhead variance is adverse even though actual spending was below budget. [2]

6. Falstone Resins Ltd made 1,700 drums of resin last month. It bought and used 9,200 kg of base chemical costing 59,800. The material price variance was 1,840 adverse and the material usage variance was 945 favourable.

(a) Calculate the standard price per kg. [2] (b) Calculate the standard quantity of base chemical per drum. [2]

7. Pardew Soap Ltd plans to introduce standard costing.

(a) Describe the stages it should follow, naming the accounting records from which actual data would be collected. [4] (b) Explain why it should set attainable rather than ideal standards. [2]

8. Coldridge Joinery Ltd reports a favourable material price variance and an adverse labour efficiency variance for the quarter. Suggest two possible reasons for each variance. [4]

9. The production manager of Snelland Dairies Ltd replaced several experienced staff with agency workers paid below the standard wage rate. Variable overhead is absorbed on labour hours.

Explain how this decision could affect three different variances, and why the manager should not be judged on the labour rate variance alone. [5]

10. Tregaron Benches Ltd makes park benches from recycled plastic. Standard cost card per bench:

Element	Standard	Cost
Direct materials	25 kg at 2.40 per kg	60.00
Direct labour	3 hours at 15.00 per hour	45.00
Variable overhead	3 hours at 5.00 per hour	15.00
Fixed overhead	3 hours at 12.00 per hour	36.00
Total		156.00

Budgeted output was 1,500 benches. Actual output in the period was 1,560 benches. Actual results: 38,400 kg of plastic bought and used, costing 93,696; 4,850 labour hours, costing 71,780; variable overhead 24,250; fixed overhead 55,300.

(a) Calculate the material price, usage and total variances. [3] (b) Calculate the labour rate, efficiency and total variances. [3] (c) Calculate the total variable overhead variance and the total fixed overhead variance. [2] (d) Show that your variances account for the whole difference between the standard cost of 1,560 benches and their actual cost. [2] (e) Explain one interrelationship between the variances you have calculated. [2]

11. Ravensden Lamps Ltd investigates any variance that is more than 4% of the related standard cost of actual output. Its July report shows:

Variance	Amount	Standard cost of actual output
Material price	2,250 F	45,000
Material usage	900 A	45,000
Labour rate	1,500 A	30,000
Labour efficiency	600 F	30,000
Total variable overhead	480 A	8,000
Total fixed overhead	300 F	15,000

(a) Identify which variances should be investigated. Show your working. [3] (b) Evaluate the use of management by exception by Ravensden Lamps Ltd. [6]

Answers

1. Any two, for example: to help plan and prepare budgets [1]; to control costs by comparing actual cost with standard cost [1]. Also accept pricing, inventory valuation or motivation. [2] Examiner insight: “To find variances” restates the method; a purpose needs to say what the business gains.

2. Managers concentrate only on variances that are significant, outside a set tolerance [1], and leave small variances alone, saving management time [1]. [2] Examiner insight: The second mark needs the reason: time and attention go where they matter.

3. Actual price = 36,540 / 6,300 = 5.80 per kg [1]. Price variance (6.00 - 5.80) x 6,300 = 1,260 F [1]. Standard quantity 2,000 x 3 = 6,000 kg [1]. Usage variance (6,000 - 6,300) x 6.00 = 1,800 A [1]. Total variance 36,000 - 36,540 = 540 A [1]. [5] Examiner insight: A variance without F or A is incomplete; check that 1,260 F and 1,800 A net to the 540 A total.

4. (a) Actual rate = 56,925 / 3,450 = 16.50 [1]. Rate (16.00 - 16.50) x 3,450 = 1,725 A [1]. Standard hours 4,800 x 0.75 = 3,600 [1]. Efficiency (3,600 - 3,450) x 16.00 = 2,400 F [1]. Total 57,600 - 56,925 = 675 F [1]. (b) More experienced or skilled staff were used [1], who are paid more per hour but work faster than the standard allows [1]. [7] Examiner insight: In (b) one cause must explain both directions; “a pay rise” explains the rate but not the efficiency.

5. (a) Standard fixed overhead = 84,000 / 12,000 = 7.00 per pump; absorbed 11,500 x 7 = 80,500 [1]. Total fixed overhead variance 80,500 - 83,100 = 2,600 A [1]. Standard variable overhead 11,500 x 3.20 = 36,800 [1]. Total variable overhead variance 36,800 - 37,950 = 1,150 A [1]. (b) Spending was 900 below the 84,000 budget, which is favourable [1], but output was 500 pumps below budget, so 500 x 7 = 3,500 of fixed overhead was not absorbed, giving 2,600 A overall [1]. [6] Examiner insight: Absorb on actual output, 11,500, not budgeted output; using 12,000 gives a different and wrong variance.

6. (a) Standard cost of actual quantity = 59,800 - 1,840 = 57,960 [1]. Standard price = 57,960 / 9,200 = 6.30 per kg [1]. (b) 945 / 6.30 = 150 kg fewer used than standard, so standard quantity = 9,200 + 150 = 9,350 kg [1]. Per drum: 9,350 / 1,700 = 5.5 kg [1]. [4] Examiner insight: An adverse price variance means actual cost was higher than standard, so subtract it; adding it gives 6.70.

7. (a) Choose the type of standard and set material and hours per unit [1]. Set standard prices, wage rates and overhead absorption rates on a standard cost card [1]. Collect actual data: prices from purchase invoices, quantities from stores requisitions, hours from clock cards or time sheets, wages from payroll [1]. Calculate variances, report them to responsible managers, investigate significant ones and review standards [1]. (b) Ideal standards assume no waste or idle time, so adverse variances appear every period and staff may give up trying [1]. Attainable standards allow normal losses, so they motivate and the variances that arise are meaningful [1]. [6] Examiner insight: Naming the records is what makes the data-collection point creditworthy; “collect actual figures” alone is too vague.

8. Price F: a bulk discount [1]; or a cheaper, lower-grade timber [1]. Efficiency A: inexperienced or newly trained staff [1]; or machine breakdowns causing idle time [1]. [4] Examiner insight: Reasons must fit the direction; “more skilled staff” explains favourable, not adverse, efficiency.

9. Lower pay gives a favourable labour rate variance [1]. Less experienced workers take longer, giving an adverse labour efficiency variance [1]. They may waste more milk and packaging, giving an adverse material usage variance [1]; extra hours also raise variable overhead, giving an adverse variable overhead variance. The adverse variances may exceed the rate saving [1], so judging the manager on the rate variance alone would reward a decision that reduced profit overall [1]. [5] Examiner insight: Three variances must be named with their direction; a list of variance names with no F or A does not explain the link.

10. (a) Price (2.40 - 2.44) x 38,400 = 1,536 A [1]. Usage (39,000 - 38,400) x 2.40 = 1,440 F [1]. Total 93,600 - 93,696 = 96 A [1]. (b) Rate (15.00 - 14.80) x 4,850 = 970 F [1]. Efficiency (4,680 - 4,850) x 15 = 2,550 A [1]. Total 70,200 - 71,780 = 1,580 A [1]. (c) Variable overhead 1,560 x 15 = 23,400; 23,400 - 24,250 = 850 A [1]. Fixed overhead absorbed 1,560 x 36 = 56,160; 56,160 - 55,300 = 860 F [1]. (d) Standard cost of actual output 1,560 x 156 = 243,360. Variances: favourable 1,440 + 970 + 860 = 3,270; adverse 1,536 + 2,550 + 850 = 4,936; net 1,666 A [1]. Actual cost 243,360 + 1,666 = 245,026, which agrees with 93,696 + 71,780 + 24,250 + 55,300 [1]. (e) Variable overhead cost exactly 5.00 per actual hour (24,250 / 4,850), so the whole 850 A is caused by the 170 extra hours behind the adverse efficiency variance [1]. The extra hours may come from lower-paid, less skilled staff, which also explains rate F [1]. [12] Examiner insight: The fixed overhead line uses actual output, 1,560 benches; an answer flexed to the 1,500 budget loses that mark.

11. (a) Material price 2,250 / 45,000 = 5.0%, investigate [1]. Labour rate 1,500 / 30,000 = 5.0%, investigate [1]. Variable overhead 480 / 8,000 = 6.0%, investigate; the other three are 2.0% each, so not investigated [1]. (b) Managers look at three variances, not six, saving time [1]. The favourable price variance is investigated too, which may reveal a better supplier worth using in future standards [1]. However, the 4% limit is a judgement, and usage at 2% could be the start of a trend that is missed [1]. Cheap material (price F) may explain the 900 A usage, which is ignored as it is under the limit [1]. Rate A and efficiency F may share one cause, so investigating one alone gives a partial picture [1]. Judgement: the method suits Ravensden, but it should review linked variances and month-to-month trends, not just the percentage rule [1]. [9] Examiner insight: An evaluation needs points for and against, applied to Ravensden’s figures, and a justified conclusion.

Where marks are usually lost

• Using budgeted output to find standard quantity, standard hours or fixed overhead absorbed.
• Valuing the usage variance at actual price, or the price variance on standard quantity.
• Not checking that the variances reconcile standard cost with actual cost.
• Giving a reason that explains the wrong direction of variance.
• Discussing a single variance when the scenario points to a linked cause.

Next steps

• Standard costing revision notes
• Standard costing study guide
• Course page: Edexcel A-Level Accounting
• YAC11 checklist to print
• Every free 10-minute diagnostic
• Book a free trial class.

Official syllabus

Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting (XAC11/YAC11) specification, Issue 2, September 2018 (first teaching September 2015), Pearson Education Limited. Unit 2: Corporate and Management Accounting, topic 2.5 Standard costing.