Reference no: EM132603160

Assume you manage your local Marble Slab Creamery 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. The system allows 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 where 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 material and labor. Assume that your superiors consider efficiency variances greater than 5% 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. Assume that the standard quantity allowed for a shake is .2 pound of ice cream and .03 hours (1.8 minutes) of direct labor. Further assume that standard costs are $1.50 per pound for ice cream and $8 an hour for labor.

Question 1: Compute the efficiency variances for direct labor and direct materials.

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