In standard costing, the effect of favorable variances on the cost of goods sold is to be ______ from the standard amount.

In standard costing, the effect of favorable variances on the cost of goods sold is to be ______ from the standard amount.

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

Answer: (C)

In standard costing, variances show how actual results differ from the planned (standard) costs. A favorable variance means actual costs were lower than the standard, so the cost recorded for goods sold is reduced relative to the standard amount. To arrive at the actual cost of goods sold, you subtract the favorable variance from the standard cost. For example, if the standard cost of goods sold is 100 and the favorable variance is 5, the actual COGS would be 95. If the variance were unfavorable, you would add to the standard amount, increasing COGS.

In standard costing, variances show how actual results differ from the planned (standard) costs. A favorable variance means actual costs were lower than the standard, so the cost recorded for goods sold is reduced relative to the standard amount. To arrive at the actual cost of goods sold, you subtract the favorable variance from the standard cost. For example, if the standard cost of goods sold is 100 and the favorable variance is 5, the actual COGS would be 95. If the variance were unfavorable, you would add to the standard amount, increasing COGS.