Case 2.

Assume you manage your local Marble Slab Creamery ice cream parlor. Your parlor is chosen to test the company’s “Made-for-You” system. The system allows patrons to customize their ice cream orders. You think the new system is a good idea given increasing competition in the ice cream market.

Customers like the new system, and your staff appears to be adapting, but you wonder whether the new system is as efficient as the old one. Efficiency is a special concern because your performance is evaluated in part on the restaurant’s efficient use of materials and labor. Assume that your superiors consider efficiency variances greater than 5% unacceptable.

You decide to look at your ice cream parlor’s sales for a typical day. You find that the parlor used 390 lbs. of ice cream and 72 hours of direct labor to produce and sell 2,000 ice cream cones. Assume that the standard quantity allowed for an ice cream cone is 0.2 pound of ice cream and 0.03 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.

Required

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

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

3. Write a memo to Marble Slab Creamery’s national office explaining your concern and suggesting a remedy. Your memo should take the following form: