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$ 350FFebruary900UMarch800UApril1,000UMay1,150UJune1,490U

The standard direct-labor cost during each of these months was $29,000. The controller has estimated that the firms monthly direct-labor variances have a standard deviation of $1,050.

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

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?