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 344,000 October 331,000 August 346,800 November 324,000 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?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Using Control Limits to Determine When to Investigate a Variance
Kavallia Company set a
| June | $331,500 | September | $314,000 | |
| July | 344,000 | October | 331,000 | |
| August | 346,800 | November | 324,000 |
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 |
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