Direct Labor and Material Variance

MO7-4: Compute standard cost variances for direct materials and direct labor. (CO #5)Suppose you manage the local Smoothie King smoothie bar. In addition to selling fruit smoothies, you make large batches of a few flavors of high protein-blend smoothies to sell throughout the day. Your store is chosen to test the company’s “Pick-Your-Smoothie” system. This new system enables patrons to customize their smoothies by choosing different blends.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 in which 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 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 store used 285 pounds of protein blend and 150 hours of direct labor to produce and sell 3,000 smoothies. The standard quantity allowed for a high-protein smoothie is 0.1 pound of protein blend and 0.045 hour of direct labor. The standard costs are $3.00 per pound of protein blend and $12 per hour for labor.Requirements:Compute the efficiency variance for direct labor and direct materials.Write a 2-4 page report to Smoothie King’s national office that includes your calculations for the variances and addresses the following items:Explain whether you have reason to be concerned about your performance evaluation.Explain your concerns about the variance results and suggest a remedy.Explain what each variance means.Justify the importance of analyzing variances.Use your textbook and one other source as references to support your explanations.

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