Question

The Wilton is an all-inclusive spa and hotel in the heart of Brooklyn and uses guests as its measure of activity. During June, The Wilton budgeted for 2,000 guests, but it actually hosted 2,100 guests. The hotel used the following revenue and cost formulas in its budgeting, where q is the number of guests:

Revenue: $62.90q
Personnel expenses: $28,500 + $20.40q
Food and beverage supplies: $1,400 + $9.90q
Occupancy expenses: $8,200 + $3.30q
Spa expenses: $4,000 + $0.40q

The hotel reported the following actual results for June:

Revenue                                       $129,450

Personnel expenses                      $ 74,770

Food and beverage supplies           $ 22,940

Occupancy expenses                     $ 14,640

Spa expenses                                   $   4,740

Required:
a. Prepare a flexible budget performance report showing The Wilton’s revenue and spending variances and activity variances for June. Label each variance as favorable (F) or unfavorable (U), filling out the shaded squares. (22 points)

	Actual Results	Revenue & Spending Variances	F/U	Flexible Budget	Activity Variance	F/U	Planning Budget
Guests
Revenue
Expenses:
Personnel
Food & Beverage Expenses
Occupancy
Spa Expenses
Total Expenses
Net Income

b. Describe at least two potential reasons for the revenue, spa expenses and food/beverage supplies variances found above. Are any of the variances related? Describe. (6 pts)

Answer 1

a.

	Actual Results	Revenue & Spending Variances	F/U	Flexible Budget	Activity Variance	F/U	Planning Budget
Guests	2100			2100			2000
Revenue	129450	2640	U	132090	6290	F	125800
Expenses:
Personnel	74770	3430	U	71340	2040	U	69300
Food & Beverage	22940	750	U	22190	990	U	21200
Occupancy	14640	490	F	15130	330	U	14800
Spa Expenses	4740	100	F	4840	40	U	4800
Total Expenses	117090	3590	U	113500	3400	U	110100
Net Income	12360	6230	U	18590	2890	F	15700

b. The potential variances can be due to the following:

1. The company served higher guests than budgeted and hence they may have offered a discounted deal to a group of guests.

2. The spa expenses are favorable which implies that not all the guests used the spa service while the food and beverages are unfavorable which can mean that the managers did not budget the input costs appropriately.

None of the expenses seem to be related since personnel expenses are usually fixed and do not vary with the level of guests. So is food and beverage , occupancy and spa which vary with level of guests served and do not interdepend on one another.