In a standard costing income statement, unfavorable variances are ______ cost of goods sold at standard cost.

In a standard costing income statement, unfavorable variances are ______ cost of goods sold at standard cost.

• A. not included in
• B. added to
• C. subtracted from
• D. shown as separate line

Answer: (B)

In standard costing, costs are planned with standard rates and quantities, and variances show how actual results differ from those standards. When a cost variance is unfavorable, it means actual costs were higher than the standard cost. To reflect the true, actual cost in the income statement that uses standard costs, you add the unfavorable variance to the cost of goods sold at standard cost. For example, if the standard COGS is 100 and the unfavorable variance is 5, the actual COGS becomes 105. This approach aligns the COGS with what actually happened, while still using standard costs as the baseline. Not including the variance would ignore the difference, subtracting would imply costs were lower than standard, and while variances can be shown separately in some formats, the conventional adjustment in this context is to add the unfavorable variance to the standard COGS.

In standard costing, costs are planned with standard rates and quantities, and variances show how actual results differ from those standards. When a cost variance is unfavorable, it means actual costs were higher than the standard cost. To reflect the true, actual cost in the income statement that uses standard costs, you add the unfavorable variance to the cost of goods sold at standard cost. For example, if the standard COGS is 100 and the unfavorable variance is 5, the actual COGS becomes 105. This approach aligns the COGS with what actually happened, while still using standard costs as the baseline. Not including the variance would ignore the difference, subtracting would imply costs were lower than standard, and while variances can be shown separately in some formats, the conventional adjustment in this context is to add the unfavorable variance to the standard COGS.