Question

Carol Lou, Inc. designs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor Outfitters in lots of one dozen. Carol Lou's May 2017 static budget and actual results for direct inputs are as follows: E (Click the icon to view the data.) (Click the icon to view additional information.) Read the requirements. Requirement 1. Calculate the direct materials and direct manufacturing labor price and efficiency variances in May 2017. 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? Begin by calculating the direct materials and direct manufacturing labor price and efficiency variances in May 2017. Complete the actual results, price variance, and cost columns, then the efficiency variance and flexible budget columns. Label each variance as favorable or unfavorable. (Round all answers to the nearest cont.) Actual Results Price Variance Actual Input Qty x Budgeted Price May 2017 Units Direct materials Direct labor Total variance Choose from any list or enter any number in the input fields and then click Chart Anew

Answer 1

Solution to part (1):

	Actual Results	Price variances	Actual Quantity x Budgeted price	Efficiency variance	Flexible Budget
lots	625				625
Direct Materials	$15,000	2,000 (U)	10,000 x $1.3 = $13,000	$ 1,625(U)	$11,375
Direct Labor	$6,341.40	81.3 (U)	813 x $7.7 = $6,260.1	$ 958.65 (F)	$ 7,218.75
Total Price Variance		$2081.3(U)
Total Efficiency Variance				$ 666.35(U)

Total Flexible budget variances for material and labor = $ 2081.3(U) + $ 666.35(U)

= $ 2747.65

Total Flexible budget cost of material and labor = $ 11,375 + $ 7,218.75

=$ 18,593.75

Total Flexible budget variances as a % of Total Flexible budget cost = $2747.65 / $ 18,593.75

=14.78%

Workings:

1) Calculation of Efficiency variances:

Direct material = (Standard quantity - Actual Quantity ) x Standard price

= ( 625 lots x 14 yards - 10,000 yards) x $ 1.3

= ( 8,750 - 10,000) x 1.3

= $1,625 (U)

Direct Labor = ( Standard hours - actual hours) x standard rate

= ( 625 lots x 1.5 hours - 813 hours) x $ 7.7

= ( 937.5 - 813 ) x $ 7.7

= $ 958.65

Flexible budget:

Direct materials:

Standard cost of material for one lot = $ 18.2 ( given)

Standard cost of material for 625 lots = 625 x 18.2 = $ 11,375

Direct Labor :

Standard cost of labor for one lot = $ 11.55 ( given)

Standard cost of labor for 625 lots = 625 x 11.55 = $ 7,218.75

Solution to part (2)

The results of may 2017 reveals a material efficiency variance of $ 1,625 (U) which states that more material was used than the normal leading to an adverse variance. However, labor efficiency variance shows a favorable variance as less labor hours were utilized than normal as discussed by production manager( faster cutting and sewing).Material price variance reveals an adverse variance of $ 2000 due to the higher price of the new material.

The above results shows that despite the new material being on the expensive side, it is of good quality as it led to faster cutting and sewing and saved labor hours. As far as quantity is concerned, the workers will learn to use the material better in future periods and hence use less material in the future. So, new material should be continued to be used.