Favorable standard cost variances are normally closed at the end of the period by:
A)Crediting the variance account and debiting Cost of Goods Sold.
B)Debiting the variance account and crediting Cost of Goods Sold.
C)Debiting the variance account and crediting Work in Process.
D)Crediting the variance account and debiting Work in Process.

Question

Quizplus · Accepted Answer

Favorable standard cost variances occur when actual costs are less than standard costs. This means that the company spent less than it planned to spend in order to produce its products. Favorable variances should be closed out by decreasing the cost of goods sold (since the actual costs were less than planned) and increasing the variance account (since the company benefited from the favorable variance). Therefore, the correct entry is to debit the variance account and credit cost of goods sold. Option B is the only one that matches these criteria.

Favorable Standard Cost Variances Are Normally Closed at the End