Journal entries for production costs using a standard cost accounting system, the favorable variances are recorded as ______ and the unfavorable variances are recorded as ______.

• A. credits; debits
• B. debits; credits
• C. assets; liabilities
• D. revenue; expenses

Answer: (A)

In a standard cost system, variances are tracked in dedicated variance accounts, and the direction of the variance determines how it is recorded. A favorable variance (actual costs come in lower than the standard) reduces production costs, so it is entered as a credit in the variance account. An unfavorable variance (actual costs higher than the standard) increases costs, so it is entered as a debit in the variance account. This opposite-sign treatment keeps the variance accounts with the correct balances and ultimately links to the overall cost of production. For example, if materials cost come in $10 under the standard, you’d credit the Materials Variance (F) account; if they come in $10 over, you’d debit the Materials Variance (U) account.