Direct materials and direct manufacturing labor variances. GloriaDee, Inc., designs and manufactures T-shirts. It sells its T-shirts to brand-name clothes retailers in lots of one dozen. GloriaDee’s May 2009 static budget and actual results for direct inputs are:

GloriaDee has a policy of analyzing all input variances when they add up to more than 10% of the total cost of materials and labor in the flexible budget and this is true in May 2009. The production manager discusses re sources of the variances: “A new type of material was purchased in May. This led to faster culling and sewing, but the workers used more material than usual as they learned to work with it. For now, the standards are fine.”

1.         Calculate the direct materials and direct manufacturing labor price and efficiency variances in May 2009. What is the total flexible-budget variance for both inputs (direct materials and direct manufacturing labor) combined? What percentage is this variance of the total cost of direct materials and direct manufacturing labor in the flexible budget?

2.         Gloria Denham, the CEO, is concerned about the input variances. But she likes the quality and feel of the new material and agrees to use it for one more year. In May 2010, GloriaDee again produces 550 lots of T-shirts. Relative to May 2009, 2% less direct material is used, direct material price is down 5%, and 2% less direct manufacturing labor is used. Labor price has remained the same as in May 2009. Calculate the direct materials and direct manufacturing labor price and efficiency variances in May 2010. What is the total flexible-budget variance for both inputs (direct materials and direct manufacturing labor) combined? What percentage is this variance of the total cost of direct materials and direct manufacturing labor in the flexible budget?

3.         Comment on the May 2010 results. Would you continue the “experiment” of using the new material?

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Static Budget Number of T-shirt lots (1 lot = 1 dozen) Per lot of T-shirts: Direct materials Direct manufacturing labor Actual Results Number of T-shirt lots sold Total direct inputs: Direct materials Direct manufacturing labor 500 $18.00 12 meters at $1.50 per meter 2 hours at $8.00 per hour $16.00 550 $12,705.00 7,260 meters at $1.75 per meter 1,045 hours at $8.10 per hour = $8,464.50