Anna Van Degna, supervisor, of housecleaning for Hotel Dell, was surprised by he

Question

Anna Van Degna, supervisor, of housecleaning for Hotel Dell, was surprised by her summary performance report for March given below.

Actual

Budget

Variance

% Variance

$169,744

$159,200

$10,544 U

6.623% U

Anna was disappointed. She thought she had done a good job controlling housekeeping labor and materials usage but her performance report revealed an unfavorable variance of $10,544. She had been hoping for a bonus for her good work but now expected a series of questions from her manager.

The cost budget for housekeeping is based on standard costs. At the beginning of a month, Anna receives a report from Hotel Delll’s Sales Department outlining the planned room activity for the month. Anna then schedules labor and materials using this information. The March budget for the housekeeping was based on 8,000 room nights. Each room night is budgeted based on the following standards for various materials, labor, and overhead:

Shower Supplies

3 bottles @ $0.30 each

Towels*

1 @ $2.00

Laundry

10 lbs. @ $0.30 a lb

Labor

½ hour @ $12.00 an hour

VOH

$6.00 per labor hour

FOH

$5 a room night (based on 8,000 room nights)

*Replacement for towels evaluated by housekeeping as inappropriate for cleaning and reuse.

With 8,900 room nights sold, actual costs and usage for housekeeping during April were:

$8,190 for 26,500 bottles of shower supplies.

$15,563 for 7,900 towels.

$27,339 for 88,500 lbs. of laundry.

$51,591 for 4,350 labor hours.

$25,839 in total VOH

$41,222 in FOH

QUESTIONS TO ANSWER:

(A) Develop a complete budget column for the above performance report presented to Anna. Break it down by expense category. The following format, with additional lines for expense categories is suggested:

Account

Actual

Budget

Variance

(B) Evaluate the usefulness of the cost center performance report presented to Anna.

(C) Prepare a more logical performance report where standard allowed is based on actual output. Also, split each variance into its price/rate/spending and quantity/efficiency components (except fixed of course). The following format, with additional lines for expense categories, is suggested:

Account

Actual

Flexible Budget

Total Variance ;;; Price/Rate/Spending Variance ;;; Quantity/Efficiency Variance

(D) Explain to Anna's boss what your report suggests about Anna's department performance.
(E) Identify additional non financial performance measures management might consider when evaluating the performance of the housekeeping department and Anna as a manager.

Actual

Budget

Variance

% Variance

$169,744

$159,200

$10,544 U

6.623% U

Explanation / Answer

(A)

(B) The cost center performance evaluation report only contains expenses for the segment of the company that Anna is responsible for.

With this report Anna got to know that her Material usage and labour handling techniques are not doing well and Anna can introduse new techniques to produce the budgeted sales.

(C)

D. In the month of April Anna's department is doing great as is suggested by the table in (C) above, if they can reduce the number of bottles used by 600 then the department would make profits.

E. Non financial measures that can be used are reducing the shower supplies by reducing the number of bottles to be used.

Account Actual Budget Variance Shower Supplies 8190 $ 7950 $ (26500 bottles @ 0.3 $ each) 240 $ U Towels 15563 $ 15800 $ (7900 towels @ 2 $ each) 237 $ F Laundry 27339 $ 26550 $ (88500 lbs @ 0.3 $ each) 789 $ U Labour 51591 $ 52200 $ (4350 labour hrs. @ 12 $ an hour) 609 $ F VOH 25839 $ 26100 $ (4350 labour hrs @ 6 $ an hour) 261 $ F FOH 41222 $ 44500 $ (8900 romm nights @ 5 $each) 3278 $ F

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