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	345,000		October	331,000
August	346,800		November	324,000

Required:

1. Calculate the variance from standard for each month.

	Variance
June	$
July	$
August	$
September	$
October	$
November	$

Which months should be investigated?

June
July
August
September
October
November

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
July
August
September
October
November