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Using Control Limits to Determine When to Investigate a Variance

Kavallia Company set a standard cost for one item at $328,000; allowable deviation is $14,500. Actual costs for the past six months are as follows:

June	$331,500		September	$314,000
July	344,000		October	331,000
August	346,800		November	324,000

Required:

1. Calculate the variance from standard for each month.

	Variance
June	$fill in the blank 1	FavorableUnfavorable
July	$fill in the blank 3	FavorableUnfavorable
August	$fill in the blank 5	FavorableUnfavorable
September	$fill in the blank 7	FavorableUnfavorable
October	$fill in the blank 9	FavorableUnfavorable
November	$fill in the blank 11	FavorableUnfavorable

Which months should be investigated?

June	InvestigatedNot investigated
July	InvestigatedNot investigated
August	InvestigatedNot investigated
September	InvestigatedNot investigated
October	InvestigatedNot investigated
November	InvestigatedNot investigated

2. What if the company uses a two-part rule for investigating variances? The allowable deviation is the lesser of 4 percent of the standard amount or $14,500. Now which months should be investigated?

June	InvestigatedNot investigated
July	InvestigatedNot investigated
August	InvestigatedNot investigated
September	InvestigatedNot investigated
October	InvestigatedNot investigated
November	InvestigatedNot investigated