Using Control Limits to Determine When to Investigate a Variance Kavallia Company set a standard cost...
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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 $330,500 September $314,000 July 344,000 October 332,000 August 346,800 November 323,000 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
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Using Control Limits to Determine When to Investigate a
Variance
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