Terry Correy, Pine Valley Spa's president, is concerned about the spa's operating performance during March. He budgeted his costs carefully so that he could reduce the annual membership fees. He now needs to evaluate those costs to make sure that the spa's profits are at the level he expected.
He has asked you, the spa's controller, to prepare a performance report on labor and overhead costs for March. He also wants you to analyze the report and suggest possible causes for any problems that you find. He wants to attend to any problems quickly, so he has asked you to submit your report as soon as possible. The following information for the month is available:
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Budgeted Costs
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Actual Costs
|
|
Variable costs:
|
|
|
|
Operating labor
|
$10,880
|
$12,150
|
|
Utilities
|
2,880
|
3,360
|
|
Repairs and maintenance Fixed overhead costs:
|
5,760
|
7,140
|
|
Depreciation, equipment
|
2,600
|
2,680
|
|
Rent
|
3,280
|
3,280
|
|
Other
|
1,704
|
1,860
|
|
Totals
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$27,104
|
$30,470
|
Correy's budget allows for eight employees to work 160 hours each per month. During March, nine employees worked an average of 150 hours each.
1. Answer the following questions:
a. Why are you preparing this performance report?
b. Who will use the report?
c. What information do you need to develop the report? How will you obtain that information?
d. When are the performance report and the analysis needed?
2. With the limited information available to you, compute the labor rate variance, the labor efficiency variance, and the variable and fixed overhead variances.
3. Prepare a performance report for the spa for March. Analyze the report, and suggest causes for any problems that you find.