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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.
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 | 345,000 | October | 331,000 | |
August | 346,800 | November | 324,000 |
Required:
1. Calculate the variance from standard for each month.
Variance | ||
June | $ | |
July | $ | |
August | $ | |
September | $ | |
October | $ | |
November | $ |
Which months should be investigated?
June | |
July | |
August | |
September | |
October | |
November |
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 | |
July | |
August | |
September | |
October | |
November |
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