Favorable variances in a standard costing framework affect cost of goods sold by being which action?

Favorable variances in a standard costing framework affect cost of goods sold by being which action?

• A. Added to
• B. Excluded from
• C. Ignored
• D. Subtracted from

Answer: (D)

In standard costing, cost of goods sold is based on standard cost per unit multiplied by actual units sold, and any difference between actual costs and those standards shows up as variances. A favorable variance means the actual cost came in lower than the standard cost. Because the standard-cost foundation already anticipated higher spending, the savings from a favorable variance reduce what is reported as COGS. Put simply, you subtract the amount of the favorable variance from COGS to reflect the lower actual cost. If costs were higher than the standard, the variance would increase COGS instead.

In standard costing, cost of goods sold is based on standard cost per unit multiplied by actual units sold, and any difference between actual costs and those standards shows up as variances. A favorable variance means the actual cost came in lower than the standard cost. Because the standard-cost foundation already anticipated higher spending, the savings from a favorable variance reduce what is reported as COGS. Put simply, you subtract the amount of the favorable variance from COGS to reflect the lower actual cost. If costs were higher than the standard, the variance would increase COGS instead.