The Wentworth Company Manufactures Modular Furniture for the Home and Uses

Essay

The Wentworth Company manufactures modular furniture for the home and uses a monthly variance system to control costs of the manufacturing departments. Edward Collins is the supervisor of the Assembly Department and is reviewing the monthly variance analysis for November, which showed a significant cost overrun (i.e., negative cost variance). Collins has gathered the following information to assist him in deciding whether or not to investigate the unfavorable cost variance for the Assembly Department: Required: Collins is uncertain about the probability estimate of 90% for proper operation of the Assembly Department. Determine the probability estimate that would cause Collins to be indifferent between the two possible managerial actions: investigate or don't investigate the variance.