Question

Stevie McQueen has run In - A - Flash Car Detailing for the past 10 years. His static budget and actual results for June 201:3 are provided below. Stevie has one employee who has been with him for all 10 years that he has been in business. In addition, at any given time he also employs two other less experienced workers. It usually takes each employee 2 hours to detail a vehicle, regardless of his or her experience. Stevie pays his experienced employee $40 per vehicle and the other two employees $20 per vehicle. There were no wage increases in June. EB (Click the icon to view the actual and budgeted income statements.) Read the requirements. Requirement 1. How many cars, on average, did Stevie budget for each employee? How many cars did each employee actually detail? Determine the formula to show how many cars, on average, the employees detailed. (X- number of cars detailed by experienced employee, Ynumber of cars detailed by both short-term employees) (Click the icon for information regarding the formula selections.) In-A-Flash Car Detailing Actual and Budgeted Income Statements for the Month Ended June 30, 2013 Budget Actual 280 250 Cars detailed Revenue Variable costs $ 35,000$47,600 1,950 7,200 9,150 38,450 9,300 $17,450$ 29,150 1,750 6,500 8,250 26,750 9,300 Costs of supplies Labor Total variable costs Contribution margirn Fixed costs Operating income -X Requirements 1. How many cars, on average, did Stevie budget for each employee? How many cars did each employee actually detail? 2. Prepare a flexible budget for June 2013. 3. Compute the sales price variance and the labor efficiency variance for each labor type. 4. What information, in addition to that provided in the income statements, should Stevie gather in order to improve operational efficiency?

Answer 1

1	Calculate the Cars Budgeted for each employee and actual cars for each employee
	It is given that the labor cost which includes wages paid to both experienced and inexperienced employees.Hence we will use two variables X and Y to find out the no of cars budgeted and actual for each employee.
	Let X be the no of cars detailed by experienced employees
	Let Y be the no of cars detailed by inexperienced employees
	Budgeted
		X+ Y	250
		40X+20Y	6500
		40X +20(250-X)	6500
		40X+5000-20X	6500
		20X+5000	6500
		20X	1500
		X	1500/20
			75
		X+Y	250
		Y	250-75
			175
	Actual	X+ Y	280
		40X+20Y	7200
		40X +20(280-X)	7200
		40X+5600-20X	7200
		20X+5600	7200
		20X	1600
		X	1600/20
			80
		X+Y	280
		Y	280-80
			200
2	Flexible Budget for June 2013
		Actual Results	Flexible Budget	Flexible Budget Variance
	Units Sold	280	280
	Revenues-A	47600	35000/250*280=39200	8400	F
	Variable Cost
	Cost of Supplies-B	1950	1750/250*280=1960	10	F
	Labor
	Experienced Worker -C	3200	3000/250*280=3360	160	F
	Inexperienced Worker -D	4000	3500/250*280=3920	80	U
	Total Variable Cost	9150	9240	90	F
	E=(B+C+D)
	Contribution F=(A-E)	38450	29960	8490	F
	Fixed Cost -G	9300	9300	0
	Operating Income =H=(F-G)	29150	20660	8490	F
3	Calculate the sales price variance and labor efficiency variance for each type of labor
	Sales price Variance	(Actual Sales Price -Budgeted Sales Price)*Actual no of cars detailed
		(170-140)*280
		8400 F
	Labor Efficiency Variance
	Experienced Worker -C	Budgeted rate per car*(Actual cars -std Cars)
		40*(80-75/250*280)
		160 F
	Inexperienced Worker -D	Budgeted rate per car*(Actual cars -std Cars)
		20*(200-175/250*280)
		80 U
4	In order to improve the operational efficiency the concerned person should look into the prices
	charged for detailing the cars in relation to the time spent by workers in detailing.It should not happen
	that the workers be paid more than the revenue earned from detailing the car.