When a company is using standard costs, only unfavorable variances need to be explained or investigated.

Question

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Both favorable and unfavorable variances need to be explained or investigated when a company is using standard costs. Favorable variances may indicate improvements in efficiency or cost-saving measures, while unfavorable variances may point to problems in the production process or unexpected cost increases that need to be addressed.

When a Company Is Using Standard Costs, Only Unfavorable Variances