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 343,000 October 331,000 August 346,800 November 323,000 Required 1 Calculate the variance from standard for each month Variance June Favorable OR Unfavorable July Favorable OR Unfavorable August Favorable OR Unfavorable September Favorable OR Unfavorable October Favorable OR Unfavorable November Favorable OR Unfavorable Which months should be investigated June Investigated OR Not investigated July Investigated OR Not investigated August Investigated OR Not investigated September Investigated OR Not investigated October Investigated OR Not investigated November Investigated OR Not 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 Investigated OR Not investigated July Investigated OR Not investigated August Investigated OR Not investigated September Investigated OR Not investigated October Investigated OR Not investigated November Investigated OR Not 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	$331,500	September	$314,000
July	343,000	October	331,000
August	346,800	November	323,000

Required:

1. Calculate the variance from standard for each month.

	Variance

June		Favorable OR Unfavorable
July		Favorable OR Unfavorable
August		Favorable OR Unfavorable
September		Favorable OR Unfavorable
October		Favorable OR Unfavorable
November		Favorable OR Unfavorable

Which months should be investigated?

June	Investigated OR Not investigated
July	Investigated OR Not investigated
August	Investigated OR Not investigated
September	Investigated OR Not investigated
October	Investigated OR Not investigated
November	Investigated OR Not 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	Investigated OR Not investigated
July	Investigated OR Not investigated
August	Investigated OR Not investigated
September	Investigated OR Not investigated
October	Investigated OR Not investigated
November	Investigated OR Not investigated

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