Suppose you manage the local Marble Slab Creamery ice cream parlor. Additionally to selling ice cream cones, you create large batches of the few flavors of milk shakes to sell throughout the day. The parlor is selected to test company's "Made-for-You" system. System permits patrons to customize the milk shakes by selecting different flavors.
Customers like new system and the staff appears to be adapting, but you wonder whether this new made-to-order system is as efficient as old system where you just made the few large batches. Efficiency is the special concern as the performance is estimated in part on restaurant's efficient use of material and labor. Suppose that the superiors consider efficiency variances greater than 5% unacceptable.
You make decision to look at the sales for the typical day. You find that parlor used 390 pounds of ice cream and 72 hours of direct labor to make and sell 2,000 shakes. suppose that standard quantity permitted for the shake is .2 pound of ice cream and .03 hours (1.8 minutes) of direct labor. Further suppose that standard costs are $1.50 per pound for ice cream and $8 an hour for labor.
Determine efficiency variances for direct labor and direct materials.
Give likely explanations for variances. Do you have reason to be concerned about the performance evaluation? Describe.