Decision Case 23-1
Suppose you manage the local Scoopy’s 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. This new system enables 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 in which you just made a few large batches. Efficiency is a special concern because your performance is evaluated in 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 used 390 pounds of ice cream and 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 labor. The
Requirements
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 Snoopy’s national office explaining your concern and suggesting a remedy.
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EBK HORNGREN'S ACCOUNTING, THE FINANCIA
- Lean principles for a restaurant The management of Grill Rite Burger fast-food franchise wants to provide hamburgers quickly to customers. It has been using a process by which precooked hamburgers are prepared and placed under hot lamps. These hamburgers are then sold to customers. In This process, every customer receives the same type of hamburger and dressing (ketchup, onions, mustard). If a customer wants something different, then a special order must be cooked to the customers requirements. This requires the customer to wait several minutes, which often slows down the service line. Grill Rite has been receiving more and more special orders from customers, which has been slowing service down considerably. A. Is the Grill Rite service delivery system best described as a push or pull system? Explain. B. How might you use lean principles lo provide customers quick service, yet still allow them to custom order their burgers?arrow_forwardNonfinancial performance measures Diamond Inc. is an Internet retailer of woodworking equipment. Customers order woodworking equipment from the company, using an online catalog. The company processes these orders and delivers the requested product from its warehouse. The company wants to provide customers with an excellent purchase experience in order to expand the business through favorable word-of-mouth advertising and to drive repeat business. To help monitor performance, the company developed a set of performance measures for its order placement and delivery process: Average computer response time to customer "clicks'' Dollar amount of returned goods Elapsed time between customer order and product delivery Maintenance dollars divided by hardware investment Number of customer complaints divided by the number of orders Number of misfilled orders divided by the number of orders Number of orders per warehouse employee Number of page faults or errors due to software programming errors Number of software fixes per week Server (computer) downtime Training dollars per programmer A. For each performance measure, identify it as either an input or output measure related to the order placement and delivery process. B. Provide an explanation for each performance measure.arrow_forwardRefer to Exercise 8.29. Suppose Gene determines that next years Sales Division activities include the following: Researchresearching current and future conditions in the industry Shippingarranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correct errors Jobberscoordinating the efforts of the independent jobbers who sell the mattresses Basic adsplacing print and television ads for the Sleepeze and Plushette lines Ultima adschoosing and working with the advertising agency on the Ultima account Office managementoperating the Sales Division office The percentage of time spent by each employee of the Sales Division on each of the above activities is given in the following table: Additional information is as follows: a. Depreciation on the office equipment belongs to the office management activity. b. Of the 21,000 for office supplies and other expenses, 5,000 can be assigned to telephone costs which can be split evenly between the shipping and jobbers activities. An additional 2,400 per year is attributable to Internet connections and fees, and the bulk of these costs (80 percent) are assignable to research. The remainder is a cost of office management. All other office supplies and costs are assigned to the office management activity. Required: 1. Prepare an activity-based budget for next year by activity. Use the expected level of sales activity. 2. On the basis of the budget prepared in Requirement 1, advise Gene regarding actions that might be taken to reduce expenses. Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,000 for the Sleepeze, 12,000 for the Plushette, and 5,000 for the Ultima. Gene Dixon, vice president of sales, has provided the following information: a. Salaries for his office (including himself at 65,000, a marketing research assistant at 40,000, and an administrative assistant at 25,000) are budgeted for 130,000 next year. b. Depreciation on the offices and equipment is 20,000 per year. c. Office supplies and other expenses total 21,000 per year. d. Advertising has been steady at 20,000 per year. However, the Ultima is a new product and will require extensive advertising to educate consumers on the unique features of this high-end mattress. Gene believes the company should spend 15 percent of first-year Ultima sales for a print and television campaign. e. Commissions on the Sleepeze and Plushette lines are 5 percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores. f. Last year, shipping for the Sleepeze and Plushette lines averaged 50 per unit sold. Gene expects the Ultima line to ship for 75 per unit sold since this model features a larger mattress. Required: 1. Suppose that Gene is considering three sales scenarios as follows: Prepare a revenue budget for the Sales Division for the coming year for each scenario. 2. Prepare a flexible expense budget for the Sales Division for the three scenarios above.arrow_forward
- Just-in-time principles Warm Space Inc. manufactures electric space heaters. While the CEO, Gwen Willis, is visiting the production facility, the following conversation takes place with the plant manager, Tyra Chastain: Gwen: As I walk around the facility, I can't help noticing all the materials inventories. What's going on? Tyra: I have found our suppliers to be very unreliable in meeting their delivery commitments. Thus, I keep a lot of materials on hand so as to not risk running out and shutting down production. Gwen: Not only do I see a lot of materials inventory, but there also seems to be a lot of finished goods inventory' on hand. Why is this? Tyra: As you know, I am evaluated on maintaining a low cost per unit. The one way that I am able to reduce my unit costs is by producing as many space heaters as possible. This allows me to spread my fixed costs over a larger base. When orders are down, the excess production builds up as inventory, as we are seeing now. But don't worry—I'm really keeping our unit costs down this way. Gwen: I'm not so sure. It seems that this inventory must cost us something. Tyra: Not really. I'll eventually use the materials, and we'll eventually sell the finished goods. By keeping the plant busy, I'm using our plant assets wisely. This is reflected in the low unit costs that I'm able to maintain. If you were Gwen Willis, how would you respond to Tyra Chastain? What recommendations would you provide to Tyra Chastain?arrow_forwardBuilding a balanced scorecard Hit-n-Run Inc. owns and operates 10 food trucks (mobile kitchens) throughout metropolitan Los Angeles. Each food truck has a different food theme, such as Irish-Mexican fusion, traditional Mexican street food, Ethiopian cuisine, and Lebanese-Italian fusion. The company was founded three years ago by Juanita O'Brien when she opened a single food truck with a unique menu. As her business has grown, she has become concerned about her ability to manage and control the business. OBrien describes how the company was built, its key success factors, and its recent growth. I built the company from the ground up. In the beginning it was just me. I drove the truck, set the menu, bought the ingredients. prepared the meals, served the meals, cleaned the kitchen, and maintained the equipment. I made unique meals from quality ingredients, and didn't serve anything that wasn't perfect. I changed my location daily and notified customers of my location via Twitter. As my customer base grew. I hired employees to help me in the truck Then one day I realized that I had a formula that could be expanded to multiple trucks. Before I knew it I had 10 trucks and was hiring people to do everything that I used to do by myself. Now, I work with my team to build the menu, set daily locations for the trucks, and manage the operations of the business My business model is based on providing the highest quality street food and charging more for it than other trucks. You won't get the cheapest meal at one of my trucks, but you will get the best The superior quality allows me to price my meals a little bit higher than the other trucks My employees are critical to my success. I pay them a better wage than they could make on other food trucks, and I expect more from them. I rely on them to maintain the quality that I established when I opened my first truck. Things are going great, but I'm feeling overwhelmed So far, the growth sales has led to a growth in profitabilitybut Im getting nervous. If quality starts to fall off, my brand value erodes, and that could affect the prices that I charge for my meals and the success of my business. Create balanced scorecard measures for Hit-n-Run Inc. Identify whether these measures best fit the innovation, customer, internal process, or financial dimension of the balanced scorecard.arrow_forwardNonfinancial performance measures Diamond Inc. is an Internet retailer of woodworking equipment. Customers order woodworking equipment from the company, using an online catalog. The company processes these orders and delivers the requested product from its warehouse. The company wants to provide customers with an excellent purchase experience in order to expand the business through favorable word-of-mouth advertising and to drive repeat business. To help monitor performance, the company developed a set of performance measures for its order placement and delivery process: Average computer response time to customer "clicks'' Dollar amount of returned goods Elapsed time between customer order and product delivery Maintenance dollars divided by hardware investment Number of customer complaints divided by the number of orders Number of misfilled orders divided by the number of orders Number of orders per warehouse employee Number of page faults or errors due to software programming errors Number of software fixes per week Server (computer) downtime Training dollars per programmer A. For each performance measure, identify it as either an input or output measure related to the order placement and delivery process. B. Provide an explanation for each performance measure.arrow_forward
- Building a balanced scorecard Hit-n-Kun Inc. owns and operates 10 food trucks (mobile kitchens) throughout metropolitan Los Angeles. Each food truck has a different food theme, such as Irish-Mexican fusion, traditional Mexican street food, Ethiopian cuisine, and Lebanese-Italian fusion. The company was founded three years ago by Juanita OBrien when she opened a single food truck with a unique menu. As her business has grown, she has become concerned about her ability to manage and control the business. OBrien describes how the company was built, its key success factors, and its recent growth. I built the company from the ground up. In the beginning it was just me. I drove the truck, set the menu, bought the ingredients, prepared the meals, served the meals, cleaned the kitchen, and maintained the equipment I made unique meals from quality ingredients and didnt serve anything that wasnt perfect. I changed my location daily and notified customers of my location via Twitter. As my customer base grew, I hired employees to help me in the truck Then one day I realized that I had a formula that could be expanded to multiple trucks. Before I knew it I had 10 trucks and was hiring people to do everything that I used to do by myself. Now I work with my team to build the menu, set daily locations for the trucks, and manage the operations of the business. My business model is based on providing the highest quality street food and charging more for it than other trucks do. You wont get the cheapest meal at one of my trucks, but you will get the best. The superior quality allows me to price my meals a little bit higher than the other trucks do. My employees are critical to my success. I pay them a better wage than they could make on other food trucks, and I expect more from them. I rely on them to maintain the quality that I established when I opened my first truck. Things are going great, but Im feeling overwhelmed. So far, the growth in sales has led to a growth in profitability but tm getting nervous. If quality starts to fall off, my brand value erodes, and that could affect the prices that I charge for my meals and the success of my business Create balanced scorecard measures for Hit-n-Run Food Trucks. Identify whether these measures best fit the innovation, customer, internal process, or financial dimension of the balanced scorecard.arrow_forwardFive-step decision-making process, manufacturing. Madison Foods makes frozen dinners that it sells through grocery stores. Typical products include turkey, pot roast, fried chicken, and meatloaf. The managers at Madison have recently proposed a line of frozen chicken pies. They take the following actions to help decide whether to launch the line. Madison’s test kitchen prepares a number of possible recipes for a consumer focus group.Sales managers estimate they will sell more chicken pies in their eastern sales territory than in their western sales territory. Managers discuss the possibility of introducing a new chicken pie. Managers compare actual labor costs of making chicken pies with their budgeted costs. Profits from selling chicken pies are budgeted. The company decides to introduce a new chicken pie. To help decide whether to introduce a new chicken pie, the company researches the price and quality of competing chicken pies. Classify each of the actions as a step in the…arrow_forwardCustomer Latitude and Pricing Maria Lorenzi owns an ice cream stand that she operates during the summer months in West Yellowstone, Montana. She is unsure how to price her ice cream cones and has experimented with two prices in successive weeks during the busy August season. The number of people who entered the store was roughly the same each week. During the first week, she priced the cones at $3.50 and 1,800 cones were sold. During the second week, she priced the cones at $4.00 and 1,400 cones were sold. The variable cost of a cone is $0.80 and consists solely of the costs of the ice cream and the cone itself. The fixed expenses of the ice cream stand are $2,675 per week. Required: 1. What profit did Maria earn during the first week when her price was $3.50? 2. At the start of the second week, Maria increased her selling price by what percentage? What percentage did unit sales decrease? (Round your answers to one-tenth of a percent.) 3. What profit did Maria earn during the second…arrow_forward
- Question 5Study the scenario and complete the question that follows:Chopper LtdChopper Ltd manufactures confectionery food in the North West province and it has been supplying thewhole province for the past ten years. They manufacture a popular sweet for kids called ‘Dama’, whichrequires three ingredients: Hola, Suca, and Sira. Since the appointment of Ms Stellah as the productionmanager three years ago, after she completed her Master’s degree in Management and CostingAccounting from Pearson Institute of Higher Education, she had adopted the use of standard costingsystem to monitor its costs. The standard materials usage and cost for one unit of ‘Dama’ is as follows:Hola: 25 grams at 3 cents per gramSuca: 20 grams at 4 cents per gramSira: 15 grams at 3½ cents per gramAt the end of 31 August 2020, Chopper Ltd produced 120 000 units of ‘Dama’ using 4 000 kilograms ofHola, 1 680 kilograms of Suca, and 2 000 kilograms of Sira.Required:Calculate the material variances (usage, mix, and yield…arrow_forwardLean principles for a restaurant The management of Grill Rite Burger fast-food franchise wants to provide hamburgers quickly to customers. It has been using a process by which precooked hamburgers are prepared and placed under hot lamps. These hamburgers are then sold to customers. In This process, every customer receives the same type of hamburger and dressing (ketchup, onions, mustard). If a customer wants something different, then a special order must be cooked to the customers requirements. This requires the customer to wait several minutes, which often slows down the service line. Grill Rite has been receiving more and more special orders from customers, which has been slowing service down considerably. A. Is the Grill Rite service delivery system best described as a push or pull system? Explain. B. How might you use lean principles lo provide customers quick service, yet still allow them to custom order their burgers?arrow_forwardProblem 18-06 b-d Sunland Hardware takes pride as the “shop around the corner” that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Sunland has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line. 1. Sunland sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Sunland winch is a standard manufacture winch that Sunland modifies so the winch can be used for a variety of tasks. Sunland sold 60 of these winches during 2020 at a total price of $18,600, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $17,600. The assurance warranties extend for a 3-year period with an estimated cost of $1,800. In addition, Sunland sold extended warranties related to…arrow_forward
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