The correct answer is: Only adverse variances are investigated intensively.
Standard costing is a method of accounting that uses pre-determined costs to control costs and evaluate performance. Standards are set for each element of cost, such as direct materials, direct labor, and overhead. Actual costs are compared to standards, and variances are calculated. Variances are investigated to identify the causes of the variances and to take corrective action.
Adverse variances are variances that are unfavorable, meaning that actual costs are higher than standard costs. Favorable variances are variances that are favorable, meaning that actual costs are lower than standard costs.
It is important to investigate all variances, both favorable and adverse, in order to identify the causes of the variances and to take corrective action. Only investigating adverse variances can lead to problems, such as:
- Not identifying problems that could lead to future losses.
- Not taking corrective action to improve performance.
- Not motivating employees to control costs.
Therefore, the statement “Only adverse variances are investigated intensively” is not correct with reference to standard costing.