Assume that the budgeted cost for a department is $10,000 per week and the standard deviation is $500.

The decision to investigate a variance requires a comparison of expected benefits with expected costs.

Suppose an unfavorable variance of $1,000 is observed.

The normal distribution indicates the probability of observing this variance is 0.0228 if the system is in control.

Furthermore, assume that the benefits would be 50% of the variance and that investigation costs are $200.

Should this variance be investigated?

Assume that the variance is still $1,00, but it is favorable. Should it still be investigated?