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	$330,500		September	$314,000
July	343,000		October	332,000
August	346,800		November	323,000

Required:

1. Calculate the variance from standard for each month.

	Variance
June	$	< >FavorableUnfavorable
July	$	< >FavorableUnfavorable
August	$	< >FavorableUnfavorable
September	$	< >FavorableUnfavorable
October	$	< >FavorableUnfavorable
November	$	< >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