Question 12.63

12.63 Monitoring budgets.

Control charts are used for a wide variety of applications in business. In the accounting area, control charts can be used to monitor budget variances. A budget variance is the difference between planned spending and actual spending for a given time period. Often, budget variances are measured in percents. For improved budget planning, it is important to identify unusual variances on both the low and high sides. The data file for this exercise includes variance percents for 40 consecutive weeks for a manufacturing work center.

budget

  1. Construct an chart for the variance percents. Report the lower and upper control limits. Identify any observations that are outside the control limits.
  2. Apply the runs rule based on nine consecutive observations being on one side of the center line. Is there an out-of-control signal based on this rule? If so, what are the associated observations?
  3. Remove all observations associated with out-of-control signals found in parts (a) and (b). Reestimate the chart control limits, and apply them to the remaining observations. Are there any more out-of-control signals? If so, identify them and remove them and reestimate limits. Continue this process until no out-of-control signals are present. Report the final control limits to be used for future monitoring.
  4. Construct an chart based on the final data of part (c). What do you conclude?

12.63

(a) . Subgroup 5 is out of control, below the LCL. (b) Subgroups 20 to 28 are all above the CL, violating the nine-in-a-row rule. (c) The process is now in control, and there are no out of control signals. . (d) The MR chart shows the process is in control.