Suppose you manage the local Scoopy\'s icecream parlor. In addition to selling i

Question

Suppose you manage the local Scoopy's icecream parlor. In addition to selling ice cream cones, you make large batches of a few flavors of milk Stakes 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 he adapting, but you wonder whether this new madc-to-order system is as efficient as the old system in which you just made a few large hatches. Efficiency is a special concern because yout 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 ami 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 lalxtr. Ilie standard costs are SI.SO per pound for ice cream and S8 per hour for labor.

Explanation / Answer

Material efficiency variance = (Standard quantity - Actual quantity) * standard price

= ( 2,000 * .2 - 390 ) * $1.50

= 10 * 1.50 = $15 favorable

Labor efficiency variance = (Standard hours for actual production - actual hours ) standard rate

= (2,000*.03 - 72) * $8

= -12 * 8 = $96 unfavorable

Labor efficiency variance is unaccepted

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