The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year. January February March April May June $300 F 850 U 750 U 950 U 1,100 U 1,480 U The standard direct-labor cost during each of these months was $24,000. The controller has estimated that the firm's monthly direct- labor variances have a standard deviation of $1,000. Required: 2-a. Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost. 2-b. Based on the cutoff value, which month will have its direct-labor efficiency variance investigated?
The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current year. January February March April May June $300 F 850 U 750 U 950 U 1,100 U 1,480 U The standard direct-labor cost during each of these months was $24,000. The controller has estimated that the firm's monthly direct- labor variances have a standard deviation of $1,000. Required: 2-a. Determine the cutoff value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost. 2-b. Based on the cutoff value, which month will have its direct-labor efficiency variance investigated?
Chapter8: Standard Costs And Variances
Section: Chapter Questions
Problem 5EB: Smith Industries uses a cost system that carries direct materials inventory at a standard cost. The...
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