When recording variances in a standard cost system:
A) Only unfavorable material variances are debited.
B) Only unfavorable material variances are credited.
C) Both unfavorable material and labor variances are credited.
D) All unfavorable variances are debited.
E) All unfavorable variances are credited.

Question

Quizplus · Accepted Answer

In a standard cost system, all unfavorable variances are debited to the appropriate cost center or account. This is done to recognize the fact that actual costs are higher than planned or budgeted costs, which results in a decrease in profitability. By debiting the unfavorable variances, the company reduces its net income and adjusts its cost of goods sold to reflect the higher costs incurred.

When Recording Variances in a Standard Cost System