British Isles Agribusiness, Ltd. (BIA), manufactures agricultural machinery in Manchester, England. Goer venance At a recent staff meeting, the controller presented the following direct-labor variance report for the year Investigation just ended. (LO 4)

BRITISH ISLES AGRIBUSINESS, LTD.

Direct-Labor Variance Report

(all variances in British pounds sterling)

Direct-Labor Direct-Labor Rate Variance Efficiency Variance Amount Standard Cost, % Amount Standard Cost, %

UE NANUiEsh y ecadeetinn Seeene = SOO Pl Ov/ow eee roti anite enna £ 4,900 U 0.98%

FOOKUANVAceseceactumenn: 4,900 F OG se ah inideamn aed anaatit Saas 6,950 U 1.39 MarClivertctctirncs 100 U 102. SY RBIOR5c sScesc.rece as 10,100 U 2.02 NOY( ee scoPesetsraeoa acasg 2,000 U A OR et Stace 13,200 U 2.64 May Preece tena 3,800 F WIASIOR Gh Podeete mee e ee 20,100 U 4.02 alWiGleMpasandoeaeee ae seca 3,900 F OR ariatmicotanyadteusrtines 17,000 U 3.40 UUM Peae ss stone ittemacaytas 4,200 F AO A ence Re acces hence rons 28,500 U 5.70

/NUTG TUS eencuecuearnetatier 5,100 F NO 2eeeer smear tae enemai

a. 38,000 U 7.60 September... 4,800 F (9G) cechh eee Oat 37,000 U 7.40 October awe 5,700 F cl Acc omaiee crettes a nt: 42,000 U 8.40 NOVEMDEF iirc. 4,200 F BARGUEE RR, Ma a 60,000 U 12.00 December..../.....0. 4,300 F SOc etna carn nesacty: 52,000 U 10.40 BIA’s controller uses the following rule of thumb: Investigate all variances equal to or greater than

£30,000, which is 6 percent of standard cost.

Required

a. Which variances would have been investigated during the year? (Indicate month and type of variance.)

b. What characteristics of the variance pattern shown in the report should draw the controller’s attention regardless of the usual investigation rule? Explain. Given these considerations, which variances would you have investigated? Why?

c. Is it important to follow up on favorable variances, such as those shown in the report? Why?

d. The controller believes that the firm’s direct-labor rate variance has a normal probability distribution with a mean of zero and a standard deviation of £5,000. Prepare a statistical control chart and plot the company’s direct-labor rate variances for each month. The critical value is 1 standard deviation. Which variances would have been investigated under this approach?