1) Flexible budget and total variance decomposition Activity variance Favorable or Unfavorable Spending variance Favorable or Unfavorable Rate per pound Master budget 9,500 125,000 Flexible Budget 11,900 156,600 Actual 11,900 156,600 0 0 Activity Client nights Pounds of laundry processed Costs Laundry labor Supplies Water & water heating & softening Maintenance Supervisor's salary Allocated administrative costs Equipment depreciation Total 2,275.00 284.00 442.00 347.00 U U U U U $ 9,000.00 $ | $ 1,125.00 $ $ 1,750.00 $ $ 1,375.00 $ $ 3,125.00 $ $ 4,000.00 $ $ 1,250.00 $ $ 21,625.00 $ $ $ $ $ $ $ $ $ 11,275.00 $ 1,409.00 $ 2,192.00 $ 1,722.00 $ 3,125.00 $ 4,000.00 $ 1,250.00 $ 24,974.00 $ 1,237.00 466.00 308.00 478.00 625.00 1,000.00 $ $ $ $ $ $ $ $ 12,512.00 1,875.00 2,500.00 2,200.00 3,750.00 5,000.00 1,250.00 29,087.00 U U 3,349.00 U 4,113.00 U 2) Laundry labor - Spending variance analysis Actual labor minutes at budgeted labor rate Client nights Pounds of laundry processed 11,900 156,600 Budgeted labor cost Actual labor cost 12,512.34 $ Budgeted labor rate per hour Actual labor rate per hour $ $ 9.00 10.20 Labor efficiency variance Favorable or Unfavorable Labor rate variance Favorable or Unfavorable Budgeted labor rate per minute Actual labor rate per minute $ $ 8.00 0.17 Budgeted labor minutes per pound 0.48 Leveu le lepUIL SITUWIIIII LIUILI NI MU-Jalludly.hu Ten CCU Ull ILS LUNCUL. A lot of my costs don't change, even if the number of pounds of laundry changes. I suppose laundry la- bor, supplies, water-related items, and maintenance vary with changes in pounds, but that's about all. Nevertheless, shouldn't my budget reflect those changes? Also, I hadn't planned for the fact that I was given a salary increase as of October 1-was I supposed to refuse it to help keep my budget in balance? Finally, I think it's important to note that I had to pay overtime to the staff because the department became inundated with laundry during the cold snap we had back in mid-December. Because of this, my average hourly rate for the whole three months was $10.20 instead of the $9.00 that was in my budget. In fact, and maybe this is a little picky, the average number of minutes it took my staff to wash a pound of laundry actually dropped from 48, which was my budget target, to 47 for the quarter. Somehow, even though it's pretty small, I think that should be taken into consideration. Assignment 1. What is your assessment of the method the administrator used to construct the budget? 2. Prepare a flexible budget for the laundry department. What does it tell you? 3. Compute the appropriate labor variances. What do they tell you? 4. What should Mr. Donaldson tell the administrator about his budget variances? SPRUCE STREET SHELTER Exhibit 1. Performance Report -- Laundry Department October - December (Over) Under Budget % (Over) Under Budget Budget Actual Client nights Pounds of laundry processed 9,500 125,000 11,900 156,600 (2,400) (31,600) (25) (25) Costs Laundry labor Supplies Water and water heating and softening Maintenance Supervisor's salary Allocated administrative costs Equipment depreciation $9,000 1,125 1,750 1,375 3,125 4,000 1.250 $12,512 1,875 2,500 2.200 3,750 5,000 1,250 $(3,512) (750) (750) (825) (625) (1,000) (39) (67) (43) (60) (20) (25) Total $21,625 $29,087 $(7,462) (35) 1) Flexible budget and total variance decomposition Activity variance Favorable or Unfavorable Spending variance Favorable or Unfavorable Rate per pound Master budget 9,500 125,000 Flexible Budget 11,900 156,600 Actual 11,900 156,600 0 0 Activity Client nights Pounds of laundry processed Costs Laundry labor Supplies Water & water heating & softening Maintenance Supervisor's salary Allocated administrative costs Equipment depreciation Total 2,275.00 284.00 442.00 347.00 U U U U U $ 9,000.00 $ | $ 1,125.00 $ $ 1,750.00 $ $ 1,375.00 $ $ 3,125.00 $ $ 4,000.00 $ $ 1,250.00 $ $ 21,625.00 $ $ $ $ $ $ $ $ $ 11,275.00 $ 1,409.00 $ 2,192.00 $ 1,722.00 $ 3,125.00 $ 4,000.00 $ 1,250.00 $ 24,974.00 $ 1,237.00 466.00 308.00 478.00 625.00 1,000.00 $ $ $ $ $ $ $ $ 12,512.00 1,875.00 2,500.00 2,200.00 3,750.00 5,000.00 1,250.00 29,087.00 U U 3,349.00 U 4,113.00 U 2) Laundry labor - Spending variance analysis Actual labor minutes at budgeted labor rate Client nights Pounds of laundry processed 11,900 156,600 Budgeted labor cost Actual labor cost 12,512.34 $ Budgeted labor rate per hour Actual labor rate per hour $ $ 9.00 10.20 Labor efficiency variance Favorable or Unfavorable Labor rate variance Favorable or Unfavorable Budgeted labor rate per minute Actual labor rate per minute $ $ 8.00 0.17 Budgeted labor minutes per pound 0.48 Leveu le lepUIL SITUWIIIII LIUILI NI MU-Jalludly.hu Ten CCU Ull ILS LUNCUL. A lot of my costs don't change, even if the number of pounds of laundry changes. I suppose laundry la- bor, supplies, water-related items, and maintenance vary with changes in pounds, but that's about all. Nevertheless, shouldn't my budget reflect those changes? Also, I hadn't planned for the fact that I was given a salary increase as of October 1-was I supposed to refuse it to help keep my budget in balance? Finally, I think it's important to note that I had to pay overtime to the staff because the department became inundated with laundry during the cold snap we had back in mid-December. Because of this, my average hourly rate for the whole three months was $10.20 instead of the $9.00 that was in my budget. In fact, and maybe this is a little picky, the average number of minutes it took my staff to wash a pound of laundry actually dropped from 48, which was my budget target, to 47 for the quarter. Somehow, even though it's pretty small, I think that should be taken into consideration. Assignment 1. What is your assessment of the method the administrator used to construct the budget? 2. Prepare a flexible budget for the laundry department. What does it tell you? 3. Compute the appropriate labor variances. What do they tell you? 4. What should Mr. Donaldson tell the administrator about his budget variances? SPRUCE STREET SHELTER Exhibit 1. Performance Report -- Laundry Department October - December (Over) Under Budget % (Over) Under Budget Budget Actual Client nights Pounds of laundry processed 9,500 125,000 11,900 156,600 (2,400) (31,600) (25) (25) Costs Laundry labor Supplies Water and water heating and softening Maintenance Supervisor's salary Allocated administrative costs Equipment depreciation $9,000 1,125 1,750 1,375 3,125 4,000 1.250 $12,512 1,875 2,500 2.200 3,750 5,000 1,250 $(3,512) (750) (750) (825) (625) (1,000) (39) (67) (43) (60) (20) (25) Total $21,625 $29,087 $(7,462) (35)