Suppose you manage for local Scoopy\'s ice cream parlor. In addition to selling
ID: 2472698 • Letter: S
Question
Suppose you manage for local Scoopy's ice cream parlor. In addition to selling ice cream cones, you make large batches of a few flavors of milkshakes to sell throughout the day. Your partner is chosen to test the company's "Made-For-You" system. This new system enables patrons to customize their milkshakes 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 efficient as the old system in which you just made a few large batches. Efficiency is a special concern because your performance is evaluated and 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 use 390 pounds of ice cream and 72 hours of direct labor to produce and sell 2000 shakes. The standard quantity I love for a shake is 0.2 pounds of ice cream and 0.03 hours of direct labor. The standard cost 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 explanation for the variances. Do you have a reason to be concerned about your performance evaluation? Explain. 3. Write a memo to Scoopy's National office explaining your concern and suggesting a remedy. Suppose you manage for local Scoopy's ice cream parlor. In addition to selling ice cream cones, you make large batches of a few flavors of milkshakes to sell throughout the day. Your partner is chosen to test the company's "Made-For-You" system. This new system enables patrons to customize their milkshakes 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 efficient as the old system in which you just made a few large batches. Efficiency is a special concern because your performance is evaluated and 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 use 390 pounds of ice cream and 72 hours of direct labor to produce and sell 2000 shakes. The standard quantity I love for a shake is 0.2 pounds of ice cream and 0.03 hours of direct labor. The standard cost 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 explanation for the variances. Do you have a reason to be concerned about your performance evaluation? Explain. 3. Write a memo to Scoopy's National office explaining your concern and suggesting a remedy.
Customers like the new system and your staff appears to be adapting, but you wonder whether this new made to order System is efficient as the old system in which you just made a few large batches. Efficiency is a special concern because your performance is evaluated and 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 use 390 pounds of ice cream and 72 hours of direct labor to produce and sell 2000 shakes. The standard quantity I love for a shake is 0.2 pounds of ice cream and 0.03 hours of direct labor. The standard cost 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 explanation for the variances. Do you have a reason to be concerned about your performance evaluation? Explain. 3. Write a memo to Scoopy's National office explaining your concern and suggesting a remedy.
Explanation / Answer
Ans;
QUESTION ONE
Materials (Pounds) Labor (hours) Produce
Usage: 390 72 2000 shakes
Std qty for shake= 0.2 ice cream; 0.03 hours
Std costs= $1.50 per pound; $8 per labor hour
Direct labor efficiency variance
= (Actual hours - Standard hours) x Standard rate
= (72 hours – 0.03hr/1 shake * 2000 shakes) * $8
= (72-60) hours * $8
= $96/ hour (favorable)
Direct material efficiency variance
= (actual quantity – budgeted quantity) * standard price
= (390 pounds – 0.2 pound/ cube * 2000 shakes) * $1.50
= (390 – 400) pounds * $1.50
= $150/ pound (unfavorable)
QUESTION TWO
Scoopy uses its labor optimally. This is as is shown by the evidence obtained from having worked out its material and labor requirements for the season. A favorable variance is synonymous with good consumption of a resource which leads to recording low levels of wastage of resources (Nelson, 1970). It implies a business using its resources well to generate sufficient cash to more revenue than planned or, as in our case, business incurs lesser expenses than expected. The basic reasons which underlie an unfavorable variance are not readily available. The corporation should however emphasize only the use of the pre-determined standard costs rather than bother about using historical costs. The former also enjoys the privilege of acceptance on the market.
The firm is however not very lucky with its usage of raw materials. This is as a result of the entity recording high volumes of wastage of resources (Rodriguez-Clare, 1996). This is the variance recorded when the actual amount of resources used up in a production process exceed their corresponding budgeted amounts.
QUESTION THREE
Memorandum
Date: June 6, 2015
To: Scoopy National Office
From: Manager, Northern Division
Re: Production Efficiency Status of the Northern Division
It has been great to come to the end of our third quarter of the financial year, and as is our tradition, it is time to evaluate our performance. The quarter has seen the division enjoy a healthy and productive spell, posting our best quarterly results ever for the 2014/2015 financial year. The division is currently upbeat to take on the market one more time before we close these quarters of 2014/2015. However, all has not been going our way, and besides a handful of hiccups, this quarter may confidently be termed a success.
The northern production unit has seen some bad patches too. To start with, the efficiency of our production units has been consistent fluctuating despite our best efforts to contain the situation. It has come to a point that the team in charge proposes that the company conducts routine maintenance with the possibility of replacing worn out machines or their parts.
The division also wishes to confirm that we have successfully completed our gradual upgrade in raw material utilized in our pump (Alchian & Demsetz, 1972). The material efficiency has therefore dropped to an unfavorable level, but this is expected to pick up as our capital assets align themselves to working on this new input. This introduction, however, did not register so much of an impact on the labor efficiency, allowing the direct labor efficiency levels to prevail.
We will inform you of any further developments in due course.
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