Problem:
Simon is the long-time catering director of Naples-on-the-Beach, a hotel noted throughout the industry for quality, profitability, and cost control. The hotel recently catered a steak dinner for a 2,000-person convention. Strict standards were in place for the dinner: 0.75 pounds of beef per plate at $9 per pound. A review of the accounting records shortly after the convention showed that 1,680 pounds of beef were purchased and consumed, costing the hotel $13,440.
Required:
A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e., the difference between budgeted and actual cost). Should this variance be of concern to the hotel? Why?
B. Assess the job that Simon did in "managing" the beef purchase by performing a variance analysis. Comment on your findings.
C. Assume that the hotel received a number of complaints shortly after the dinner concluded. Explain a possible reason behind the conventioneers' unhappiness.