CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
SECTION C – Performance Management (Weightage 20%)
S.No Questions Answers
1. What is a standard cost and A standard cost is an estimate of the cost the company expects to
why is it important? incur in the production process.
Standard costs are required in order to evaluate how a company
performed during a period because performance is measured
against the standard cost.
2. What are the Level 1 Static budget variances. These are based on the income statement
variances? and compare the actual result to the master budget.
3. What are the Level 2 1) The flexible budget variance:
variances? Actual Results – Flexible Budget Amount
2) The sales volume variance:
Flexible Budget Amount – Static Budget Amount
4. How is the direct material (Actual Quantity − Standard Quantity for Actual Output)
quantity variance × Standard Price
calculated?
5. How is the direct material (Actual Price − Standard Price) × Actual Quantity
price variance calculated?
6. How is the direct labor rate (Actual Rate – Standard Rate) × Actual Hours
variance calculated?
7. How is the direct labor (Actual Hours − Standard Hours for Actual Output)
efficiency variance × Standard Rate
calculated?
8. How is the material price (or The price (or rate) variance is calculated for each input individually
labor rate) variance and then added together.
calculated when there is
more than one input?
9. How is the material quantity The quantity (or efficiency) variance is calculated for each input
(or labor efficiency) variance individually and then added together.
calculated when there is
more than one input?
10. When there is more than 1) The mix variance
one material input or labor 2) The yield variance
class, what are the two
quantity sub-variances?
11. How is the sales mix The Sales Mix Variance measures the effect of the difference
variance for a multiple- between the proportions of total units sold represented by each
product firm calculated? product as planned compared to what actually occurred.
Just as we did with the manufacturing mix variance, we will use
waspAM (the weighted average standard price for the actual mix)
and waspSM (the weighted average standard price for the standard
mix) in calculating the Sales Mix Variance for the revenue line:
From the Desk of Muhammad Zain – Founder of Zain Academy Page 62 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
(waspAM – waspSM) × AQ
12. How is the sales quantity The Sales Quantity Variance measures the effect of the difference
variance for a multiple- between the actual total units sold of all products and
product firm calculated? the budgeted total units of all products expected to be sold. The
Sales Quantity Variance does not take into consideration variances
due to differences in the mix of products sold.
To calculate the Sales Quantity Variance for a multiple-product firm,
we use the Quantity Variance formula, but we use the weighted
average standard price for the standard mix (waspSM) in the
formula in place of the standard price:
(AQ – SQ) × waspSM
13. What are the four 1) Variable overhead spending variance
overhead variances? 2) Variable overhead efficiency variance
3) Fixed overhead spending variance
4) Fixed overhead production-volume variance
14. How is the total variable Actual total variable overhead incurred (money spent on
overhead variance these items) (AP x AQ)
calculated? – Variable overhead applied to production using
predetermined rate (SP x SQ)
= Total variable overhead variance
15. How is the variable overhead Actual total variable overhead incurred (money actually
spending variance spent) (AP x AQ)
calculated? – Budgeted variable overhead based on inputs actually
used (SP x AQ)
= Variable overhead spending variance
or
(AP − SP) × AQ
16. How is the variable overhead Budgeted variable overhead based on inputs actually
efficiency variance used (AQ x SP)
calculated? − Standard variable overhead allowed for
production/applied to production (SQ x SP)
= Variable overhead efficiency variance
or
(AQ − SQ) × SP
17. How is the total fixed Actual fixed overhead incurred (money actually spent)
overhead variance – Standard fixed overhead applied (standard rate × standard
calculated? usage for actual output)
= Total fixed overhead variance
From the Desk of Muhammad Zain – Founder of Zain Academy Page 63 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
18. How is the fixed overhead Actual Fixed Overhead Incurred
spending variance – Budgeted Fixed Overheads (the flexible budget OR the
calculated? static budget amount)
= Fixed Overhead Spending/Flexible Budget Variance
19. How is the fixed overhead Budgeted Fixed Overheads (the flexible budget OR the
production-volume static budget amount)
variance calculated? – Standard fixed overhead applied (standard rate × standard
input for actual output)
= Fixed Overhead Production-Volume Variance
20. What are the variances in 1) The volume variance is equal to the production-volume
3-way variance analysis? variance as calculated for fixed overhead.
2) The efficiency variance is equal to the variable overhead
efficiency variance.
3) The spending variance is equal to the variable overhead
spending variance plus the fixed overhead spending
variance.
21. What are the variances in 1) The volume variance is equal to the production-volume
2-way variance analysis? variance for fixed overhead.
2) The controllable variance is equal to the sum of the
remaining three variances, which are the variable spending
variance, variable efficiency variance, and fixed spending
variance.
22. How are sales variances Sales variances are calculated in much the same way as input
calculated in comparison to variances, except that sales variances should use contribution per
the input variances? unit instead of sales price per unit (if that information is available).
This is also the case when sales variances for multiple products are
calculated.
23. What are the four types of 1) Cost center – the incurrence of costs
responsibility centers and 2) Revenue center – generating revenues
what is each responsible for? 3) Profit center – both costs and revenues
4) Investment center – both profit and a return on investment
24. What are the two ways of 1) Stand-alone allocation
allocating common costs? 2) Incremental cost allocation
25. How is the contribution Net revenues
income statement - Variable manufacturing costs
prepared? = Manufacturing contribution margin
- Variable nonmanufacturing costs
= Contribution margin
- Controllable fixed costs
= Controllable margin
- Non-controllable, traceable fixed costs
= Contribution by strategic business unit
- Non-controllable, untraceable fixed costs
= Operating income
From the Desk of Muhammad Zain – Founder of Zain Academy Page 64 of 154
PART 1
SECTION C – Performance Management (Weightage 20%)
S.No Questions Answers
1. What is a standard cost and A standard cost is an estimate of the cost the company expects to
why is it important? incur in the production process.
Standard costs are required in order to evaluate how a company
performed during a period because performance is measured
against the standard cost.
2. What are the Level 1 Static budget variances. These are based on the income statement
variances? and compare the actual result to the master budget.
3. What are the Level 2 1) The flexible budget variance:
variances? Actual Results – Flexible Budget Amount
2) The sales volume variance:
Flexible Budget Amount – Static Budget Amount
4. How is the direct material (Actual Quantity − Standard Quantity for Actual Output)
quantity variance × Standard Price
calculated?
5. How is the direct material (Actual Price − Standard Price) × Actual Quantity
price variance calculated?
6. How is the direct labor rate (Actual Rate – Standard Rate) × Actual Hours
variance calculated?
7. How is the direct labor (Actual Hours − Standard Hours for Actual Output)
efficiency variance × Standard Rate
calculated?
8. How is the material price (or The price (or rate) variance is calculated for each input individually
labor rate) variance and then added together.
calculated when there is
more than one input?
9. How is the material quantity The quantity (or efficiency) variance is calculated for each input
(or labor efficiency) variance individually and then added together.
calculated when there is
more than one input?
10. When there is more than 1) The mix variance
one material input or labor 2) The yield variance
class, what are the two
quantity sub-variances?
11. How is the sales mix The Sales Mix Variance measures the effect of the difference
variance for a multiple- between the proportions of total units sold represented by each
product firm calculated? product as planned compared to what actually occurred.
Just as we did with the manufacturing mix variance, we will use
waspAM (the weighted average standard price for the actual mix)
and waspSM (the weighted average standard price for the standard
mix) in calculating the Sales Mix Variance for the revenue line:
From the Desk of Muhammad Zain – Founder of Zain Academy Page 62 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
(waspAM – waspSM) × AQ
12. How is the sales quantity The Sales Quantity Variance measures the effect of the difference
variance for a multiple- between the actual total units sold of all products and
product firm calculated? the budgeted total units of all products expected to be sold. The
Sales Quantity Variance does not take into consideration variances
due to differences in the mix of products sold.
To calculate the Sales Quantity Variance for a multiple-product firm,
we use the Quantity Variance formula, but we use the weighted
average standard price for the standard mix (waspSM) in the
formula in place of the standard price:
(AQ – SQ) × waspSM
13. What are the four 1) Variable overhead spending variance
overhead variances? 2) Variable overhead efficiency variance
3) Fixed overhead spending variance
4) Fixed overhead production-volume variance
14. How is the total variable Actual total variable overhead incurred (money spent on
overhead variance these items) (AP x AQ)
calculated? – Variable overhead applied to production using
predetermined rate (SP x SQ)
= Total variable overhead variance
15. How is the variable overhead Actual total variable overhead incurred (money actually
spending variance spent) (AP x AQ)
calculated? – Budgeted variable overhead based on inputs actually
used (SP x AQ)
= Variable overhead spending variance
or
(AP − SP) × AQ
16. How is the variable overhead Budgeted variable overhead based on inputs actually
efficiency variance used (AQ x SP)
calculated? − Standard variable overhead allowed for
production/applied to production (SQ x SP)
= Variable overhead efficiency variance
or
(AQ − SQ) × SP
17. How is the total fixed Actual fixed overhead incurred (money actually spent)
overhead variance – Standard fixed overhead applied (standard rate × standard
calculated? usage for actual output)
= Total fixed overhead variance
From the Desk of Muhammad Zain – Founder of Zain Academy Page 63 of 154
, CERTIFIED MANAGEMENT ACCOUNTANT (CMA) -
PART 1
18. How is the fixed overhead Actual Fixed Overhead Incurred
spending variance – Budgeted Fixed Overheads (the flexible budget OR the
calculated? static budget amount)
= Fixed Overhead Spending/Flexible Budget Variance
19. How is the fixed overhead Budgeted Fixed Overheads (the flexible budget OR the
production-volume static budget amount)
variance calculated? – Standard fixed overhead applied (standard rate × standard
input for actual output)
= Fixed Overhead Production-Volume Variance
20. What are the variances in 1) The volume variance is equal to the production-volume
3-way variance analysis? variance as calculated for fixed overhead.
2) The efficiency variance is equal to the variable overhead
efficiency variance.
3) The spending variance is equal to the variable overhead
spending variance plus the fixed overhead spending
variance.
21. What are the variances in 1) The volume variance is equal to the production-volume
2-way variance analysis? variance for fixed overhead.
2) The controllable variance is equal to the sum of the
remaining three variances, which are the variable spending
variance, variable efficiency variance, and fixed spending
variance.
22. How are sales variances Sales variances are calculated in much the same way as input
calculated in comparison to variances, except that sales variances should use contribution per
the input variances? unit instead of sales price per unit (if that information is available).
This is also the case when sales variances for multiple products are
calculated.
23. What are the four types of 1) Cost center – the incurrence of costs
responsibility centers and 2) Revenue center – generating revenues
what is each responsible for? 3) Profit center – both costs and revenues
4) Investment center – both profit and a return on investment
24. What are the two ways of 1) Stand-alone allocation
allocating common costs? 2) Incremental cost allocation
25. How is the contribution Net revenues
income statement - Variable manufacturing costs
prepared? = Manufacturing contribution margin
- Variable nonmanufacturing costs
= Contribution margin
- Controllable fixed costs
= Controllable margin
- Non-controllable, traceable fixed costs
= Contribution by strategic business unit
- Non-controllable, untraceable fixed costs
= Operating income
From the Desk of Muhammad Zain – Founder of Zain Academy Page 64 of 154
