Chapter 10, Problem 28E

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.

The standard direct-labor cost during each of these months was $19,000. The controller has estimated that the firm’s monthly direct-labor variances have a standard deviation of $950.

Required:

1. 1. Draw a statistical control chart and plot the variance data given above. Which variances will be investigated?
2. 2. Suppose the controller’s rule of thumb is to investigate all variances equal to or greater than 6 percent of standard cost. Then which variances will be investigated?
3. 3. Would you investigate any of the variances listed above other than those indicated by the rules discussed in requirements (1) and (2)? Why?