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EX $10-28($Algo$)$ 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.

The standard direct$-$labor cost during each of these months was $$22,000.$ The controller has estimated that the firm's

monthly direct$-$labor variances have a standard deviation of $$980.$

EX $10-28($Algo$)$ Part $2$: Which variances will be investigated?

Required:

$2-$a$.$ Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than $7$

percent of standard cost.

$2-$b$.$ Based on the cutoff value, which month will have its direct$-$labor efficiency variance investigated?

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Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater

than $7$ percent of standard cost.