AmyDee Inc designs and manufactures T shirts It sells its
AmyDee, Inc., designs and manufactures T- shirts. It sells its T- shirts to brand- name clothes retailers in lots of one dozen. AmyDee’s May 2012 static budget and actual results for direct inputs are as follows:
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AmyDee 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 2012. 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 2012. 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. Amy Young, the CEO, is concerned about the input variances. However, she likes the quality and feel of the new material and agrees to use it for one more year. In May 2013, AmyDee again produces 500 lots of T- shirts. Relative to May 2012, 2% less direct material is used, the direct material price is down 5%, and 2% less direct manufacturing labor is used. The labor price has remained the same as in May 2012. 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?
3. Comment on the May 2013 results. Would you continue the “experiment” of using the newmaterial?
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