Calculation of standard cost MCQs With Answer

Calculation of Standard Cost MCQs With Answer

Standard costing is a key tool in pharmaceutical manufacturing for planning, controlling and evaluating production costs. This blog presents targeted multiple-choice questions designed for M.Pharm students to deepen their understanding of standard cost calculations, variance analysis and their application in batch-based drug production. The questions cover formulas for material, labour and overhead variances, interpretation of favourable and unfavourable variances, treatment of scrap and spoilage, setting realistic standards, and reconciling standard and actual costs. Practice with these MCQs will reinforce both theoretical concepts and practical calculations needed for cost control, regulatory reporting and efficient decision-making in pharmaceutical manufacturing settings.

Q1. What is the primary definition of a standard cost?

• A historical average of past production costs
• A predetermined cost per unit used for planning and control
• The actual cost recorded in financial statements
• The market price of raw materials at the time of purchase

Correct Answer: A predetermined cost per unit used for planning and control

Q2. Which formula correctly gives the direct material price variance?

• (Actual quantity used − Standard quantity) × Standard price
• (Actual price − Standard price) × Actual quantity purchased
• (Actual price − Standard price) × Standard quantity allowed
• (Standard price − Actual price) × Standard quantity allowed

Correct Answer: (Actual price − Standard price) × Actual quantity purchased

Q3. How is the material usage (quantity) variance calculated?

• (Actual quantity used − Standard quantity allowed) × Standard price
• (Actual price − Standard price) × Actual quantity used
• (Standard quantity allowed − Actual quantity used) × Actual price
• (Actual quantity purchased − Standard quantity allowed) × Standard price

Correct Answer: (Actual quantity used − Standard quantity allowed) × Standard price

Q4. The labor rate variance is computed by which expression?

• (Actual hours − Standard hours) × Standard rate
• (Actual rate − Standard rate) × Actual hours
• (Standard rate − Actual rate) × Standard hours
• (Actual rate − Standard rate) × Standard hours

Correct Answer: (Actual rate − Standard rate) × Actual hours

Q5. Which formula represents the labor efficiency variance?

• (Actual hours − Standard hours) × Standard rate
• (Actual rate − Standard rate) × Actual hours
• (Actual hours − Standard hours) × Actual rate
• (Standard hours − Actual hours) × Actual rate

Correct Answer: (Actual hours − Standard hours) × Standard rate

Q6. Variable overhead variances are typically split into which two components?

• Spending (expenditure) variance and efficiency variance
• Price variance and volume variance
• Budget variance and allocation variance
• Rate variance and capacity variance

Correct Answer: Spending (expenditure) variance and efficiency variance

Q7. What does fixed overhead volume variance measure?

• The difference between actual fixed overhead paid and budgeted fixed overhead
• The difference between budgeted fixed overhead and fixed overhead applied to production
• The change in fixed overhead due to price fluctuations
• The difference between variable overhead applied and actual variable overhead

Correct Answer: The difference between budgeted fixed overhead and fixed overhead applied to production

Q8. A standard cost card for a pharmaceutical tablet typically contains which elements?

• Only direct material quantities and their market prices
• Actual cost history of the last three batches
• Standard quantity and cost for materials, labour and overhead per unit
• Regulatory approval status and shelf-life information

Correct Answer: Standard quantity and cost for materials, labour and overhead per unit

Q9. Which of the following are common types of standards used in standard costing?

• Ideal, normal (attainable) and basic standards
• Historical, optimistic and pessimistic standards
• Regulatory, fiscal and operational standards
• Fixed, variable and semi-variable standards

Correct Answer: Ideal, normal (attainable) and basic standards

Q10. What is the primary purpose of using standard costing in pharmaceutical manufacturing?

• To replace all budgeting and forecasting activities
• To provide benchmarks for cost control, performance measurement and variance analysis in production
• To ensure products meet pharmacopeial specifications
• To determine market pricing solely based on standard costs

Correct Answer: To provide benchmarks for cost control, performance measurement and variance analysis in production

Q11. How should normal scrap be treated in a standard costing system?

• As an abnormal loss charged to the current period expense
• Included in the standard yield or standard cost and absorbed in unit costs
• Always capitalized and excluded from cost of goods sold
• Ignored in all calculations because it is insignificant

Correct Answer: Included in the standard yield or standard cost and absorbed in unit costs

Q12. The predetermined overhead rate is usually calculated as:

• Actual overhead incurred ÷ Actual machine hours
• Estimated overhead ÷ Estimated allocation base (e.g., machine hours or labour hours)
• Total direct materials ÷ Total direct labour
• Standard overhead ÷ Actual production units

Correct Answer: Estimated overhead ÷ Estimated allocation base (e.g., machine hours or labour hours)

Q13. When purchase quantity differs from usage, which quantity is used in the material price variance formula?

• Standard quantity allowed for actual output
• Actual quantity purchased
• Actual quantity used in production
• Estimated purchase quantity for the period

Correct Answer: Actual quantity purchased

Q14. If actual labour hours are less than standard hours allowed for production, the labour efficiency variance is normally:

• Unfavourable because fewer hours indicate overstaffing
• Favourable because less time was used than standard
• Neutral since hours cannot affect variance
• Ignored unless coupled with a rate variance

Correct Answer: Favourable because less time was used than standard

Q15. An excess of material used over the standard quantity allowed for actual output will produce:

• A favourable material usage variance
• No variance if material price is lower
• An unfavourable material usage variance
• A favourable material price variance

Correct Answer: An unfavourable material usage variance

Q16. Which variance is most directly controllable by production supervisors in a batch process?

• Material usage (quantity) variance
• Material price variance
• Fixed overhead volume variance
• Budgeted overhead variance

Correct Answer: Material usage (quantity) variance

Q17. How is the relationship between actual cost, standard cost and total variances commonly expressed?

• Actual cost = Standard cost − Total variances
• Actual cost = Standard cost + Total variances (with unfavourable as positive, favourable as negative)
• Standard cost = Actual cost × Total variances
• Total variances = Actual cost ÷ Standard cost

Correct Answer: Actual cost = Standard cost + Total variances (with unfavourable as positive, favourable as negative)

Q18. Fixed overhead volume variance arises primarily because of:

• Changes in material prices during the period
• Differences between actual production volume and the activity level used to set budgeted fixed overhead
• Variations in direct labour hourly rates
• Fluctuations in variable overhead efficiency

Correct Answer: Differences between actual production volume and the activity level used to set budgeted fixed overhead

Q19. A key advantage of using standard costing in pharmaceutical plants is:

• It eliminates the need for variance investigation
• It provides timely performance feedback and facilitates control by isolating variances
• It guarantees product quality without laboratory testing
• It fixes selling prices irrespective of market changes

Correct Answer: It provides timely performance feedback and facilitates control by isolating variances

Q20. In batch manufacturing, how should setup cost per batch be treated when calculating standard cost per unit?

• Ignored because setup is a fixed cost and not relevant per unit
• Allocated to each unit in the batch by dividing setup cost by batch size
• Charged entirely to the first unit produced only
• Treated as a selling expense outside production cost

Correct Answer: Allocated to each unit in the batch by dividing setup cost by batch size

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