Sunrise Hotels (E) Variance Analysis: What happened to our plan? Why are the budgeted profits and our actual profits different? Did our manager do a good job? Does she deserve a bonus this year?

It is January 2019 and you are reviewing the 2018 income statement for your property. Next week, you and six other general managers will meet in El Paso, Texas with the regional manager for an annual performance review meeting. You gather the data provided below and use variance analysis to understand your results prior to the meeting.

Data from an industry consultant show that the market size in 2018 was 73,363 rooms, and you used this information in calculating your 2011 sales forecast (in Exercises 2 and 3). Today, in January 2019, market data revealed that 60,575 rooms were sold in your area by you and your competitors. Calculate actual (1) market share and (2) average room rate so that you may use these numbers to create flex budgets that enable you to report (1) market size and (2) market share variances.

Variances are computed relative to the budget. Using the static budget and actual data provided below start your analysis.

Actual data provided in your year-end income statement:

Rooms Rented 15,713

Revenues $ 593,058

Controllable Costs

Front Office 112,191

Housekeeping 56,165

Other Personnel 79,594

Total Personnel 247,950

Supplies 20,601

Other Expense 28,792

Repairs 37,218

Energy 60,795

Utilities 29,394

Total Expense $ 424,750

Controllable Profit $ 168,308

Static Budget for the year was:

Rooms Rented 17,500

Revenues $ 638,225

Controllable Costs

Front Office 93,600

Housekeeping 75,250

Other Personnel 80,400

Total Personnel 249,250

Supplies 23,625

Other Expense 28,800

Repairs 17,500

Energy 56,400

Utilities 16,200

Total Expense $ 391,775

Controllable Profit $ 246,450

For this problem level 0 considers only the difference between the static and actual budget data. Level 1 compares the static and actual budget line by line. Level 2 compares Actual, Flexible, and Static results line by line.

Required: Use the budget statement formats from Sunrise D

1. What is the Level-0 variance for this property? What is your evaluation of management using only this data?
2. Complete a level 1 analysis. What is your evaluation of management with this additional data?
3. Do a Level-2 variances for your property? Do each line item separately and sum the variances for each line item to obtain the overall variance totals. This is the Flexible Budget variance and the Sales Volume Variance. (Hint: Front Office, Other Personnel, Other expenses, Energy, and Utilities are treated as fixed costs for all this analysis.) Does this analysis change any of your previous opinions? How?
4. Calculate the market size, and market share variances? Does this information change any of your opinions on the managers performance?
5. Calculate the price and efficiency variances (i.e., Level-3 variances) for housekeeping expense? To do this, you obtained the following data from the company controller: Housekeepers worked a total of 7,247.1 hours. The standard (budgeted) wage rate was $7.50 per hour.