Question
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 | 343,000 | October | 331,000 | |
| August | 346,800 | November | 323,000 |
Required:
1. Calculate the variance from standard for each month.
| Variance | ||
| June | Favorable OR Unfavorable | |
| July | Favorable OR Unfavorable | |
| August | Favorable OR Unfavorable | |
| September | Favorable OR Unfavorable | |
| October | Favorable OR Unfavorable | |
| November | Favorable OR Unfavorable | |
Which months should be investigated?
| June | Investigated OR Not investigated |
| July | Investigated OR Not investigated |
| August | Investigated OR Not investigated |
| September | Investigated OR Not investigated |
| October | Investigated OR Not investigated |
| November | Investigated OR Not 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 | Investigated OR Not investigated |
| July | Investigated OR Not investigated |
| August | Investigated OR Not investigated |
| September | Investigated OR Not investigated |
| October | Investigated OR Not investigated |
| November | Investigated OR Not investigated |
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Information Technology Auditing And Assurance
Authors: James A. Hall, Tommie Singleton
2nd Edition
0324191987, 978-0324191981
