Question
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
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 | $ | 330 | F |
February | 880 | U | |
March | 780 | U | |
April | 980 | U | |
May | 1,130 | U | |
June | 1,390 | U | |
The standard direct-labor cost during each of these months was $27,000. The controller has estimated that the firms monthly direct-labor variances have a standard deviation of $1,030. Required: 2-a. Determine the cutoff value for investigation if the controllers rule of thumb is to investigate all variances equal to or greater than 5 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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