Question

PERFORMANCE EVALUATION

Julie Miller supervisor of housecleaning for Hotel Minto, was surprised by her summary report for March given below.

Hotel Minto Housekeeping Performance Report For the month of March
Actual	Budget	Variance	%Variance
$198,511	$186,400	$12,111 U	6.497% U

Julie was disappointed. She thought she had done a good job controlling housekeeping labor and towel usage, but her performance report revealed an unfavorable variance of $12,111. 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, Julie receives a report from Hotel Minto’s Sales Department outlining the planned room activity for the month. Julie then schedules labor and purchases using this information. The 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 @ $0.35 each
Towels	1 @ $2.25
Laundry	10 lbs @ $0.35 a lb.
Labor	½ hour @ $14.00 an hour
VOH	$7.00 per labor hour
FOH	$6 a room night (based on 8,000 room nights

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

$9,311 for 26,500 bottles of shower supplies

$17,502 for 7,900 towels

$31,882 for 88,500 lbs. of laundry

$60,200 for 4,350

$30,150 for total VOH

$49,466 for FOH

Required:

You have been asked to re-evaluate Julie’s performance.

Prepare a report to Julie’s boss demonstrating and explaining your findings; including your suggestions for performance evaluation methods and measures in the future.

Explain what your report suggests about Kathys departiment erformance.

Answer 1

It is incorrect to compare standard cost for 8,000 room nights with actual cost of 8,900 room nights. Therefore Julie is wrong in stating that variance is $12,111 (Unfavorable). In order to arrive at the correct variance we will first calculate the standard cost for 88,000 room nights and compare them with actual results.

	A	B	C	D	E	F	*
	Units Required per room night	Units Required 8900 room night (A*8900)	Rate per Unit	Standard Cost for 8900 nights (B*C)	Actual Cost	Variance (D-E)
Shower	3	26,700	0.35	9,345	9,311	34	F
Towel	1	8,900	2.25	20,025	17,502	2523	F
Laundry	10	89,000	0.35	31,150	31,882	732	U
Labour	0.50	4,450	14	62,300	60,200	2100	F
Variable Overhead	0.50	4,450	7	31,150	30,150	1000	F
Fixed Overhead				52,200**	49,466	2,734	F
Total						7,659	F

* U= Unfavorable, F= Favorable

** Standard Fixed Overhead = Standard Output for Actual Hours Worked* Standard Rate per unit

= 4,350*2*6 = 52,200

As per the above table the total variance is 7,659 (F), that is, the actual costs are lower than standard cost for 8,900 nights. Only one variance is unfavorable, that is laundry.

Laundry Variance:

Laundry Unit Variance = (Standard Quantity-Actual Quantity)*Standard Rate = (89,000-88,500)*.35 = 175 F

Laundry Rate Variance= Actual Quantity*(standard rate - actual rate) = 88,500(0.35-0.3602) = 907 U

Thus, the variance is unfavorable because of the increase in rate for laundry

Actual rate for laundry = 31,882/88,500

Therefore Julie has done a good job at controlling the usage of materials and labour.