Do variance accounts have an impact on financial statements? Or are they for performance evaluation only?

Since the financial statements must reflect the cost principle, both the standard costs and the variances must be included in the financial statements.

For example, if a direct material has a standard cost of $400 but the company paid $422, the financial statement must report $422 (the standard cost of $400 plus the price variance of $22).

How the variances are reported on the financial statements is discussed in the last part of the topic Standard Costing.

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