Suppose you manage the local Scoopy’s ice cream parlor. In addition to ­selling ­ice- cream cones, you make large batches of a few flavors of milk shakes to sell throughout the day. Your parlor is chosen to test the company’s “Made- ­for- You” system. This new system enables patrons to customize their milk shakes by ­choosing different flavors. Customers like the new system and your staff appears to be adapting, but you wonder whether this new made- to- order system is as efficient as the old system in which you just made a few large batches. Efficiency is a special concern because your performance is evaluated in part on the restaurant’s efficient use of ­materials and labor. Your superiors consider efficiency variances greater than 5% to be ­unacceptable. You decide to look at your sales for a typical day. You find that the parlor used 390 pounds of ice cream and 72 hours of direct labor to produce and sell 2,000 shakes. The standard quantity allowed for a shake is 0.2 pound of ice cream and 0.03 hour of direct labor. The standard costs are $ 1.50 per pound for ice cream and $ 8 per hour for labor.

1. Compute the efficiency variances for direct labor and direct materials.
2. Provide likely explanations for the variances. Do you have reason to be ­concerned about your performance evaluation? Explain.
3. Write a memo to Scoopy’s national office explaining your concern and ­suggesting a remedy.

  • CreatedJanuary 16, 2015
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