The director of cost management for Odessa Company uses a statistical control ch
ID: 3221887 • Letter: T
Question
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 $38,000. The controller has estimated that the firm’s monthly direct-labor variances have a standard deviation of $1,900.
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.
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.
Explanation / Answer
variances equal to or greater than 6 percent of standard cost. = 0.06*38,000 = 2280
Based on the cutoff value, june will have their direct-labor efficiency variance investigated
as 2400 > 2280