Computation of labour and material variances for a hotel You work as the assistant to the management accountant for a major hotel chain, Stately Hotels plc. The new manager of one of the largest hotels in the chain, the Regent Hotel, is experimenting with the use of standard costing to plan and control the costs of preparing and cleaning the hotel bedrooms. Two of the costs involved in this activity are cleaning labour and the supply of presentation soap packs.

Cleaning labour: Part-time staff are employed to clean and prepare the bedrooms for customers. The employees are paid for the number of hours that they work, which fluctuates on a daily basis depending on how many rooms need to be prepared each day. The employees are paid a standard hourly rate for weekday work and a higher hourly rate at the weekend. The standard cost control system is based on an average of these two rates, at 3.60 per hour. The standard time allowed for cleaning and preparing a bedroom is fifteen minutes. Presentation soap packs: A presentation soap pack is left in each room every night. The packs contain soap, bubble bath, shower gel, hand lotion etc. Most customers use the packs or take them home with them, but many do not. The standard usage of packs used for planning and control purposes is one pack per room night. The packs are purchased from a number of different suppliers and the standard price is 1.20 per pack. Stocks of packs are valued in the accounts at standard price. Actual results for May: During May 8400 rooms were cleaned and prepared. The following data were recorded for cleaning labour and soap packs.

Task

(a) Using the data above, calculate the following cost variances for May: (i) soap pack price; (ii) soap pack usage; (iii) cleaning labour rate; (iv) cleaning labour utilization or efficiency.

(b) Suggest one possible cause for each of the variances which you have calculated, and outline any management action which may be necessary.

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Cleaning labour: Part-time staff are employed to clean and prepare the bedrooms for customers. The employees are paid for the number of hours that they work, which fluctuates on a daily basis depending on how many rooms need to be prepared each day. The employees are paid a standard hourly rate for weekday work and a higher hourly rate at the weekend. The standard cost control system is based on an average of these two rates, at 3.60 per hour. The standard time allowed for cleaning and preparing a bedroom is fifteen minutes. Presentation soap packs: A presentation soap pack is left in each room every night. The packs contain soap, bubble bath, shower gel, hand lotion etc. Most customers use the packs or take them home with them, but many do not. The standard usage of packs used for planning and control purposes is one pack per room night. The packs are purchased from a number of different suppliers and the standard price is 1.20 per pack. Stocks of packs are valued in the accounts at standard price. Actual results for May: During May 8400 rooms were cleaned and prepared. The following data were recorded for cleaning labour and soap packs.