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Assignment - Odessa Company Problems - 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 $410 F
February 960 U
March 860 U
April 1,060 U
May 1,210 U
June 1,790 U
The standard direct-labor cost during each of these months was $35,000. The controller has estimated that the firm's monthly direct-labor variances have a standard deviation of $1,110.
Required -
a. Determine the cut-off value for investigation if the controller's rule of thumb is to investigate all variances equal to or greater than 5 percent of standard cost.
b. Based on the cut-off value, which month will have its direct-labor efficiency variance investigated?
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