Question

Part 3 The supervisor of housekeeping for a local hotel, was surprised by her summary performance report for January that is shown below. Housekeeping Performance Report For the month of January Percentage of Variance Actual Budget Variance 9 169,744 159,200 10,544 U 6.62% The supervisor was disappointed by this performance report. She thought she had done a good job controlling housekeeping labor and towel usage. She had expected 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, the housekeeping supervisor receives a report fro the hotel's sales department outlining the planned room activity for the month. She then schedules labor and purchases using this information. The budget for 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 Towel-replacement Laundry Labor Variable Overhead Fixed Overhead 3 bottles 1 towel 10 pounds 0.5 hour $0.30 each $2 Each $0.30 pound $12 hour $6 hour $5 a room night based on Applied Applied 8,000 Room nights Actual room nights sold 8,500 rooms

Answer 1

1.

2.

FORMULA USED FLEXIBLE BUDGET PERFORMANCE REPORT Flexible Flexible Budget Actual Cost Budget Cost Variance $ 8,500.00 $ 8,500.00 Designation U or F Flexible Budget Cost Room Nights F F Shower Supplies Towel Replacement Laundry Labor Variable Overheads Fixed Overheads Total $ $ $ $ $ $ $ 8,190.00 $ 15,563.00 $ 24,000.00 $ 51,591.00 $ 25,100.00 $ 40,500.00 $ 1,64,944.00 $ 7,650.00 $ 17,000.00 $ 25,500.00 $ 51,000.00 $ 25,500.00 $ 40,000.00 $ 1,66,650.00 $ -540.00 1,437.00 1,500.00 -591.00 400.00 500.00 1,706.00 (=3*0.3*8500) (=1*2*8500) (=10*0.3*8500) (=0.5*12*8500) |(=0.5*6*8500) (=5*8000) F U

The supervisor should be evaluated based on the flexible budget performance because with the change in level of activity, the related expenditure and controls starts varying. Therefore, it is better to use flexible budget rather than standard costing because the change in level of activity is captured only in flexible budget and not in standard costing. In the above scenario, the standard costing is based on 8,000 rooms but the actual occupancy was 8,500 rooms. Hence, the related expenditures are expected to increase in the proportion of the increased occupancy. Therefore, the flexible budget should be used to evaluate the performance of supervisors.

Note:

1. Be careful while reading figure (with commas).
2. The fixed overheads will not change with the increased level of occupancy, Therefore, 8,000 rooms has been used to calculate the expenditure.
3. The formula used to calculate flexible budget is placed in a separate column in Brackets for your reference.