Advanced: Investigation of variances

(a) Describe and comment briefly on the basis and limitations of the control chart approach to variance investigation decisions. (6 marks)

(b) The following analysis is available for the month of April for Department A:

(c) You are uncertain of the estimated probability in (b). Calculate the probability estimate at which you would be indifferent between investigating and not investigating the variance.
(6 marks)

(d) Discuss the use of mathematical models for the variance investigation decision. (7 marks)
(Total 25 marks) CIMA Stage 4 Management Accounting-
Control and Audit

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Standard direct material Material usage variance Material mix variance () 72 000 4500 unfavourable 2500 unfavourable The following estimates have also been made for Department A: Estimated cost of investigating the total material variance Estimated cost of correcting the total variance if investigated and found to be out of control Estimated cost of permitting out-of-control material variances to continue () 1000 2000 10 000