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 appeal to be adapting, by you wonder whether this new made to order system is as efficient as the old system in which you made a few large batches. Efficiency is special concern because your performance is evaluated in part on the restaurants 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 the 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.

Requirements:

1) Compute the efficiency variances for direct labor and direct materials.

2) Provide likely explanations for the variances. Do you have a reason to be concerned about your performance evaluation? Explain.

3) Create a memo to Scoopys national office explaining your concern and suggesting a remedy.