Read the scenario below and answer the questions that follow in your role as a member of the senior management team at Oakwood.

You are reviewing budgets and actual results for the month of April for the various business activities and today, you are focusing on Golf Cart Rentals. In the recent past, there has been some tension between the management of Golf Cart Rentals and Golf Course Operations, so some information about Golf Course Operations is included below.

About Oakwood

Oakwood is a resort hotel with tennis courts, swimming pools, three golf courses, restaurants, and many other fine amenities. The resort's management structure is highly decentralized because each business activity is quite different and requires a different set of managerial skills, experience, and staffing. For example, being a good hotel dining room manager requires a completely different set of skills and experiences than being a good golf course pro shop manager. Oakwood believes that the decentralized structure is a key success factor in its strategy and tries to operate every one of its business activities as a profit center unless the activity does not have a measurable revenue stream. Those activities are managed as cost centers. Two of the most important activities in Golf Division are Golf Course Operations and Golf Cart Rentals. Each of these activities are managed as profit centers because each has an identifiable revenue stream and each requires a specific set of managerial skills to be successful.

Golf Cart Rentals

Oakwood customers who wish to play golf may either rent a cart or walk the course. They only pay a cart rental fee if they rent a cart. The Golf Cart Rentals profit center's revenue each month is the total of the cart rental fees. Jay MacDonald ("Mac") is the manager of the Golf Cart Rentals profit center and he supervises all business activities related to rentals of motorized golf carts at Oakwood. The carts are leased from various vendors and Mac negotiates these leases. Most vendors like to lease for two or three years, but one of Mac's valuable skills is his ability to make good deals with golf cart suppliers. His crafty negotiations have given Oakwood a portfolio of lease rental terms ranging from three months to three years at very good rates. Mac manages the golf cart maintenance crew that keeps the 200-cart fleet clean, properly fueled with oil and gas, and that makes minor repairs on the carts. The carts are solidly built and rarely need major repairs as long as they are properly maintained, and Mac does a good job of hiring and keeping skilled mechanics who excel at maintenance and minor repairs. He always says that paying a little more is worth it to get hard-working, competent workers, and the golf cart maintenance crew does have a higher average pay rate than most of the other Golf Division employees. As a result ofthis excellent maintenance program, the few carts that do need major repairs are usually old and about to go off-lease anyway. So, instead of repairing them, Mac just takes them out of service and replaces them in the next round of leasing. The accounting department records the salaries and related costs (payroll taxes and benefits) in the Labor account. Two years ago, Mac installed large underground tanks (one for gas and one for oil) so Oakwood could buy in bulk and get quantity discounts. This has worked out well and has reduced oil and gas costs so much that the cost of the tanks and installation will be recaptured at the end of this year. The distributor's tanker trucks, one for oil and one for gas, stop by every three or four weeks to refill the tanks. The accounting department records these costs in the Gas and oil expense account when they get the invoice for each delivery, usually a few days after the delivery.

Golf Course Operations

Sandra Bunker ("Sandy") is the manager of Golf Course Operations. A major part of her job is supervising golf course maintenance and repair. A resort golf course must be in excellent condition to draw resort guests and others to the course. Thus, the condition of the course is an important part of the entire resort's reputation. Oakwood has had several marketing research studies done over the years and all of them confirm that when a resort's golf course falls into poor condition, everything from dining room revenue to room rental revenue suffers.

Golf Course Operations is a profit center and its revenue is the total of greens fees collected from resort guests and others to play on the golf courses. Costs charged to Golf Course Operations include grounds crew salaries and benefits, the cost of outsourced services such as planting and trimming the trees and bushes that line the fairways, and the cost of supplies such as fertilizer, grass seed, bedding flowers, sand, and various kinds of mulch. The grounds crew workers are mostly unskilled laborers who are generally paid just a little more than the minimum wage.

Weather conditions are an important factor in the overall profitability of any golf course. Rainy or cold weather will reduce the number of golfers who play the course, but even more important is that the condition of the course can be affected by how it is used when it has become wet. If rain continues for several days or the rain amounts are unusually high, the course can become waterlogged. Operating golf carts on a waterlogged course can do serious and permanent damage to the turf. To prevent permanent turf damage, Sandy can choose to close the course to golf carts entirely, or she can have the grounds crew restrict golf cart use by placing rope fences around the wet areas. A course that is closed to carts can still generate greens fees paid by golferswho are willing to walk the course. On rare occasions, the course will become so wet that Sandy will close the course to all golfers.

Sandy determines whether each course will be open or closed due to weather conditions on any particular day. She also determines whether players can use golf carts. As you might imagine, Sandy does hear from Mac on days when she prohibits golf carts, but Sandy does have the final say in that decision since the condition of the golf courses is, ultimately, her responsibility. Sandy is on the courses each morning at dawn supervising the maintenance crews, so she is in a good position to decide whether to rope off just the wettest parts of the course and allow carts, prohibit carts, or close the course entirely.

A Rainy April at Oakwood

This April, golf cart operating profits were extremely low, amounting to a mere 49% of budgeted profits. When you discussed this matter with Mac, he explained that the poor results were caused by the unusually heavy rains in April. He complained that Sandy had closed entire courses to carts on several days when only parts of the courses were too wet to tolerate the carts safely. He argued that, on those days, guests could play the courses (and generate revenue for Sandy), but they could not drive carts, which shut his revenue off completely. Note: Guests are not permitted to drive carts in roped off areas of a golf course; but they can rent carts and drive them elsewhere on the course. If an entire course is roped off, guests cannot rent carts at all when playing that course on that day.

Mac said he had overheard Sandy's grounds crew members talking among themselves on the days that entire courses were closed to carts. He had heard the crew members saying that they were too busy to rope off just the wet areas and that they had gone ahead and closed entire courses to cart traffic instead because it was easier to do that than to spend time roping off the wet areas. You could see that Mac was not happy about this. In your conversation with Mac, for example, he compared the grounds crew unfavorably to his golf cart maintenance crew, noting that his crew were all hard working employees and not "lazy" like the grounds crew.

When you met with both Mac and Sandy, you learned that they communicate regularly and often share the same opinions about the operation of Oakwood as a whole. Your impression is that they generally work together in a positive and cooperative manner to resolve issues that arise. But you do see that the decisions Sandy makes about roping off the courses (or parts of the courses) are a consistent source of concern for Mac.

The resort's controller, Ampzilla Forkwort, developed a flexible budget analysis for April that she says will help you better analyze Mac's results. Her analysis for the month appears below (F indicates a favorable variance, U indicates an unfavorable variance):