Using Control Limits to Determine When to Investigate a VarianceKavallia 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$314,000July343,000 October331,000August346,800 November323,000Required:1. Calculate the variance from standard for each month. Variance June$fill in the blank 1 July$fill in the blank 3 August$fill in the blank 5 September$fill in the blank 7 October$fill in the blank 9 November$fill in the blank 11 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

Variance =Standard cost -Actual cost If standard cost is more than actual cost , the variance is…

Answered: Using Control Limits to Determine When…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter9: Standard Costing: A Functional-based Control Approach

Section: Chapter Questions

Problem 4CE: Kavallia Company set a standard cost for one item at 328,000; allowable deviation is 14,500. Actual...

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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	$330,500	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	$fill in the blank 1
July	$fill in the blank 3
August	$fill in the blank 5
September	$fill in the blank 7
October	$fill in the blank 9
November	$fill in the blank 11

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

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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