Which of the following best describes how favorable variances affect cost of goods sold at standard cost?

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Multiple Choice

Which of the following best describes how favorable variances affect cost of goods sold at standard cost?

Explanation:
In a standard cost system, cost of goods sold is tracked using standard costs, and any difference between actual costs and those standards is recorded as variances. A favorable variance means actual costs were lower than what was planned, so this savings reduces the amount charged to COGS. Put simply, you subtract the favorable variance from the standard COGS to arrive at the reported COGS for the period. For example, if the standard COGS is 100,000 and the favorable variance is 5,000, the actual COGS would be 95,000. If the variance were unfavorable, it would increase COGS by the amount of the variance.

In a standard cost system, cost of goods sold is tracked using standard costs, and any difference between actual costs and those standards is recorded as variances. A favorable variance means actual costs were lower than what was planned, so this savings reduces the amount charged to COGS. Put simply, you subtract the favorable variance from the standard COGS to arrive at the reported COGS for the period. For example, if the standard COGS is 100,000 and the favorable variance is 5,000, the actual COGS would be 95,000. If the variance were unfavorable, it would increase COGS by the amount of the variance.

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