Question：Which of the following statements are true?

A. A company works fewer hours than budgeted. This will result in an adverse fixed overhead volume capacity variance.

B. The fixed overhead volume capacity variance represents part of the over/under absorption of overheads.

The correct answer is: Both statements are true.

Question：Which of the following criticisms of standard costing apply in all circumstances?

(i)Standard costing can only be used where all operations are repetitive and output is homogeneous.

(ii)Standard costing systems cannot be used in environments which are prone to change. They assume stable conditions.

(iii)Standard costing systems assume that performance to standard is acceptable. They do not encourage continuous improvement.

A. Criticism (i)

B. Criticism (ii)

C. Criticism (iii)

D. None of them

The correct answer is:

None of the criticisms apply in all circumstances.

Criticism (i) has some validity but even where output is not standardised it may be possible to identify a number of standard components and activities whose costs may be controlled effectively by the use of standard costs.

Criticism (ii) also has some validity but the use of information technology means that standards can be updated rapidly and more frequently, so that they may be useful for the purposes of control by comparison.

Criticism (iii) can also be addressed in some circumstances. The use of ideal standards and more demanding performance levels can combine the benefits of continuous improvement and standard costing control.