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	332,000
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

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 332,000 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 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 Investigated August Not investigated September October November