Solved: SallyMay Inc designs and manufactures T shirts It

sells its T shirts

SallyMay Inc designs and manufactures T shirts It sells its T shirts

SallyMay, Inc., designs and manufactures T-shirts. It sells its T-shirts to brand-name clothes
retailers in lots of one dozen. SallyMay’s May 2013 static budget and actual results for direct
inputs are as follows:

SallyMay 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 2013. The
production manager discusses the sources of the variances: “A new type of material was
purchased in May. This led to faster cutting and sewing, but the workers used more material
than usual as they learned to work with it. For now, the standards are fine.”

Required
1. Calculate the direct materials and direct manufacturing labor price and efficiency variances in
May 2013. 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. Sally King, 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 2014, SallyMay again
produces 450 lots of T-shirts. Relative to May 2013, 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 2013. Calculate the direct materials and direct manufacturing
labor price and efficiency variances in May 2014. 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 2014 results. Would you continue the “experiment” of using the
newmaterial?

SallyMay Inc designs and manufactures T shirts It sells its T shirts

ANSWER
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