Exercise 10-30 Cost Variance Investigation (LO 10-4)

The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year.

January	$	500	F
February		1,600	U
March		1,400	U
April		1,800	U
May		2,100	U
June		2,400	U

The standard direct-labor cost during each of these months was $38,000. The controller has estimated that the firms monthly direct-labor variances have a standard deviation of $1,900.

Required:
a.	Determine the cutoff value for investigation if the controllers rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost.

b.	Based on the cutoff value, which of the month(s) will have their direct-labor efficiency variance investigated?