Question: . Using Control Limits to Determine When to Investigate a Variance Kavallia Company set a standard cost for one item at $328,000; allowable deviation is

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Using Control Limits to Determine When to Investigate a Variance

Kavallia Company set a standard cost for one item at $328,000; allowable deviation is $14,500. Actual costs for the past six months are as follows:

June $331,500 September $314,000
July 344,000 October 331,000
August 346,800 November 324,000

Required:

1. Calculate the variance from standard for each month.

Variance
June $fill in the blank 1

FavorableUnfavorable
July $fill in the blank 3

FavorableUnfavorable
August $fill in the blank 5

FavorableUnfavorable
September $fill in the blank 7

FavorableUnfavorable
October $fill in the blank 9

FavorableUnfavorable
November $fill in the blank 11

FavorableUnfavorable

Which months should be investigated?

June

InvestigatedNot investigated
July

InvestigatedNot investigated
August

InvestigatedNot investigated
September

InvestigatedNot investigated
October

InvestigatedNot investigated
November

InvestigatedNot investigated

2. What if the company uses a two-part rule for investigating variances? The allowable deviation is the lesser of 4 percent of the standard amount or $14,500. Now which months should be investigated?

June

InvestigatedNot investigated
July

InvestigatedNot investigated
August

InvestigatedNot investigated
September

InvestigatedNot investigated
October

InvestigatedNot investigated
November

InvestigatedNot investigated

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