Which operation best describes how favorable variances are treated in the standard costing presentation of cost of goods sold?

Which operation best describes how favorable variances are treated in the standard costing presentation of cost of goods sold?

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

Answer: (B)

In standard costing, cost of goods sold is shown using standard costs, with variances used to reconcile to actual results. A favorable variance means actual costs were lower than the standard. That cost savings reduces what would be reported as COGS, so you subtract the amount of the favorable variance from the standard COGS. If the variance were unfavorable, it would increase COGS.

In standard costing, cost of goods sold is shown using standard costs, with variances used to reconcile to actual results. A favorable variance means actual costs were lower than the standard. That cost savings reduces what would be reported as COGS, so you subtract the amount of the favorable variance from the standard COGS. If the variance were unfavorable, it would increase COGS.