Standard costs are used for which purpose in relation to variances?

• A. To set the budget
• B. To determine wage rates
• C. To calculate depreciation
• D. To help management understand reasons for variances

Answer: (D)

Standard costs provide a benchmark for what costs should be, per unit of output, so actual costs can be compared against them. This comparison yields variances, and analyzing those variances shows why costs were different from expectations—whether due to changes in price, waste, or efficiency. That’s why standard costs are used to understand reasons for variances: they translate actual performance into actionable explanations. They aren’t primarily about setting wage rates or depreciation, and while budgets involve estimates, the main purpose here is explaining variances through the standard-cost framework.