Question

After graduating from Yorkville University, you begin working as a senior manager for a major office cleaning company. Your boss has hired you at a salary of $127,000 per year because of your honesty and the ethical behaviour you demonstrated while you were studying at Yorkville. Your boss knows that you have strong skills in Managerial Accounting as you attended every class and never plagiarized or cheated on any of the Exams or Learning Activities.

Below is your company’s static budget and actual results for the month of August. Your company has one experienced employee and two less experienced workers. It normally takes an employee two hours to clean an office. The company pays $35 per office to the experienced employee and $25 per office to the other less experienced employees. Wages are increased at the rate of inflation and are only awarded in December.

Office Cleaning Inc.

August 2020

	Budget	Actual
Office Cleaned	240	260
Revenue	50,400	65,000
Variable Costs
Costs of Supplies	1,230	1,330
Labour	6,900	7,500
Total Variable Costs	8,130	8,830
Contribution Margin	42,270	56,170
Fixed Costs	5,000	5,000
Operating Income	37,270	51,170

Your boss has asked you to analyse the results and answer the following Four (4) questions.

1. How many offices, on average, did Office Cleaning Inc. budget for each employee? How many offices did each employee clean?
2. Prepare a Flexible Budget for August 2020
3. Compute the sales price variance and labour efficiency variance for both the experienced and less experienced employee.
4. What other information would you want Office Cleaning Inc. to gather if you wanted to improve operational efficiency?

Answer 1

Budgeted Actual 260 32 33 34 35 Office Cleaned (A) Number of Employyes (B) Each employee cleans (A/B) 240 3 3 80 87 36 37 38 39 80 offices have been budgeted for each employee and actually 87 offices has been cleaned by each employee. Prepare a Flexible Budget for August 2020 40 41 42 Flexible Budget Activity Variances Budget 43 44 45 Flexible Budget Performance Report Actual Results Revenue and Spending Variances 260 0 65000 10400 (F) 8830 23 (U) 56170 10378 (F) 5000 0 51170 10378 (6) Office Cleaned Revenue Variable Costs Contribution Margin Fixed Costs Operating Income 46 260 54600 8808 45793 5000 40793 20 (F) 4200 (F) 678 (U) 3523 (F) 0 240 50400 8130 42270 5000 37270 47 48 49 3523 (F) 50

51 Compute the sales price variance and labour efficiency variance for both the experienced and less experienced employee. 52 53 Sales Price Variance 54 55 Actual units *( Actual Price - Standard Priice) 56 57 260 * (250-210) 58 59 10400 (F)