Which statement best describes variances in standard costing?

• A. Variances compare actual costs to standard costs for actual output
• B. Variances compare forecast costs to actual costs
• C. Variances apply only to materials
• D. Variances are never used for performance measurement

Answer: (A)

Variances in standard costing show the gap between what costs should have been for the actual level of production and what was actually incurred. In a standard costing system, each unit has a predetermined standard cost for materials, labor, and overhead. To evaluate performance for the actual output, you compare the actual total cost to the standard cost allowed for that level of output. The difference reveals over- or under-costing and can be broken into price and efficiency components for each cost category. The statement that best describes this is that variances compare actual costs to standard costs for actual output. The other options don’t fit because variances are not about forecast versus actual, they apply beyond materials, and they are used for performance measurement and cost control.