Highland Company's standard cost is $250,000.The allowable deviation is ±10%.Its actual costs for six months are

The actual cost which is lower than the lower control limit is
A) $220,000
B) $280,000
C) $265,000
D) $235,000

Question

Highland Company's standard cost is $250,000.The allowable deviation is ±10%.Its actual costs for six months are ​
​
 The actual cost which is lower than the lower control limit is
A) $220,000 
B) $280,000 
C) $265,000 
D) $235,000

Quizplus · Accepted Answer

The lower control limit for Highland Company's standard cost is calculated as follows:
Lower control limit = Standard cost - (Allowable deviation x Standard cost)
Lower control limit = $250,000 - (0.1 x $250,000)
Lower control limit = $225,000

The actual cost which is lower than the lower control limit is $220,000 (option A). Therefore, option A is the best choice.

Highland Company's Standard Cost Is $250,000