Assume that you manage your local marble slab creamery ice cream parlour. In addition to selling ice cream cones, you make large batches of few flavours of milk shakes to sell throughout the day. Your parlour is chosen to test the company's "Made-For-You" system. The system allows patrons to customize their milk shakes by choosing different flavours. Customers like the new system and your staff appears to be adapting, but you wonder whether this new system is as efficient as the old system where you made just 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 labour. Assume that your superiors consider that efficiency variances greater than 5% are unacceptable. You decide to look at you sales for a typical day. You find that the parlour used 390 kilograms of ice cream and 72 hours of labour to produce and sell 2,000 shakes. Assume that the standard quantity allowed for a shake 0.2 kg of ice cream and 0.03 hours (1.8 minutes) of direct labour. Further, assume that standard costs are $1.50 per kilogram for ice cream and $8.00 an hour for labour.
Problem 1. Compute the efficiency variances for direct labour and direct materials.
Problem 2. Provide likely explanations for variances.
Problem 3. Do you have reason to be concerned about you performance evaluation? Explain.