Allan Ltd manufactures gardening equipment. At a recent staff meeting, the following direct labour variance report for
Question:
Allan Ltd's management accountant uses the following rule of thumb: investigate all variances equal to or greater than $60 000, or 6 per cent of standard cost.
Required:
1. Which variances would have been investigated during the year? (Indicate month and type of variance.)
2. What characteristics of the variance pattern shown in the report should draw the accountant's attention, regardless of the usual investigation rule? Explain. Given these considerations, which variances would you have investigated? Why?
3. Is it important to follow up on favourable variances, such as those shown in the report? Explain your answer.
4. The management accountant believes that the firm's direct labour rate variance has a normal statistical probability distribution with a mean of zero and a standard deviation of $10 000. Prepare a statistical control chart, and plot the company's direct labour rate variances for they year. The critical value is one standard deviation. Which variances would have been investigated under this approach?
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
Step by Step Answer:
Management Accounting
ISBN: 9781760421144
7th Edition
Authors: Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton