Ruth Dee, Inc. designs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor outfitters in lots of one dozen. Ruth Dee's May 2017 static budget and actual results for direct inputs are as follows: Static Budget Number of jacket lots (1 lot = 1 dozen) 400 Per Lot of Jackets: Direct materials 14 yards at $1.40 per yard = $19.60 Direct manufacturing labor 1.5 hours at $8.50 per hour = $12.75 Actual Results Number of jacket lots sold 425 Total Direct Inputs: Direct materials 6,800 yards at $1.60 per yard = $10,880.00 Direct manufacturing labor 553 hours at $8.60 per hour = $4,755.80 Ruth Dee has a policy of analyzing all input variances when they add up to more than 8% of the total cost of materials and labor in the flexible budget, and this is true in May 2017. 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." 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? 2. Comment on the May 2017 results. Would you continue the "experiment" of using the new material?
Ruth Dee, Inc. designs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor outfitters in lots of one dozen. Ruth Dee's May 2017 static budget and actual results for direct inputs are as follows: Static Budget Number of jacket lots (1 lot = 1 dozen) 400 Per Lot of Jackets: Direct materials 14 yards at $1.40 per yard = $19.60 Direct manufacturing labor 1.5 hours at $8.50 per hour = $12.75 Actual Results Number of jacket lots sold 425 Total Direct Inputs: Direct materials 6,800 yards at $1.60 per yard = $10,880.00 Direct manufacturing labor 553 hours at $8.60 per hour = $4,755.80 Ruth Dee has a policy of analyzing all input variances when they add up to more than 8% of the total cost of materials and labor in the flexible budget, and this is true in May 2017. 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." 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? 2. Comment on the May 2017 results. Would you continue the "experiment" of using the new material?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Ruth Dee, Inc. designs and manufactures fleece quarter-zip jackets. It sells its jackets to brand-name outdoor outfitters in lots of one dozen. Ruth Dee's May 2017 static budget and actual results for direct inputs are as follows:
Static Budget
Number of jacket lots (1 lot = 1 dozen)
400
Per Lot of Jackets:
Direct materials
14 yards at $1.40 per yard = $19.60
Direct manufacturing labor
1.5 hours at $8.50 per hour = $12.75
Actual Results
Number of jacket lots sold
425
Total Direct Inputs:
Direct materials
6,800 yards at $1.60 per yard = $10,880.00
Direct manufacturing labor
553 hours at $8.60 per hour = $4,755.80
Ruth Dee has a policy of analyzing all input variances when they add up to more than 8% of the total cost of materials and labor in the flexible budget, and this is true in May 2017. 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."
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?
2. Comment on the May 2017 results. Would you continue the "experiment" of using the new material?
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