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 $330,500 September $314,000 July 343,000 October 332,000 August 346,800 November 323,000 Required 1 Calculate the variance from standard for each month Variance June $ FavorableUnfavorable July $ FavorableUnfavorable August $ FavorableUnfavorable September $ FavorableUnfavorable October $ FavorableUnfavorable November $ 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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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 $14,500.

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	$330,500	September	$314,000
July	343,000	October	332,000
August	346,800	November	323,000

Required:

1. Calculate the variance from standard for each month.

	Variance

June	$	< >FavorableUnfavorable
July	$	< >FavorableUnfavorable
August	$	< >FavorableUnfavorable
September	$	< >FavorableUnfavorable
October	$	< >FavorableUnfavorable
November	$	< >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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