Question 11.RQ.5: The Arcadian Hotel operates a budgeting system and budgets e...
The Arcadian Hotel operates a budgeting system and budgets expenditure over eight budget centres as shown below. Analysis of past expenditure patterns indicates that variable costs in some budget centres vary according to occupied room nights (ORN), while in others the variable proportion of costs varies according to the number of visitors (V). The budgeted expenditures for a period with 2,000 ORN and 4,300 V were as follows:
| Variable costs
vary with: |
Budgeted expenditure | Partial cost analysis | |
| Budget expenditure | |||
| Budget centre | £ | includes: | |
| Cleaning | ORN | 13,250 | £2.50 per ORN |
| Laundry | V | 15,025 | £1.75 per V |
| Reception | ORN | 13,100 | £12,100 fixed |
| Maintenance | ORN | 11,100 | £0.80 per ORN |
| Housekeeping | V | 19,600 | £11,000 fixed |
| Administration | ORN | 7,700 | £0.20 per ORN |
| Catering | V | 21,460 | £2.20 per V |
| General overheads | 11,250 | all fixed | |
| 112,485 |
In period 9, with 1,850 ORN and 4,575 V, actual expenditures were as follows:
Budget centre Actual expenditure
£
Cleaning 13,292
Laundry 14,574
Reception 13,855
Maintenance 10,462
Housekeeping 19,580
Administration 7,930
Catering 23,053
General overheads 11,325
114,071
Requirements
(a) The total budget cost allowances for the following costs in the flexible budget for period 9 are:
£
Cleaning \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
Laundry \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
Reception \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
Maintenance \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
Housekeeping \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
General overheads \boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }
(b) The total budget cost allowance in the flexible budget for period 9 is £113,521.
The total expenditure variance for period 9 is £\boxed{ \ \ \ \ \ \ \ \ \ \ \ \ \ }. The variance is:
adverse \square
favourable \square
● A common error in this type of question is to calculate the expenditure variance (part (b)) by comparing the actual results with the budget supplied in the question. This is the budget for quite different activity levels, so the flexed budget should be used instead.
(a)
£
Cleaning 12,875
Laundry 15,506
Reception 13,025
Maintenance 10,980
Housekeeping 20,150
General overheads 11,250
Workings:
| Activity (ORN/V ) | Variable cost
per unit |
Variable cost allowance | Fixed cost allowance | Total budget
cost allowance |
|
| £ | £ | £ | £ | ||
| Cleaning | 1,850 | 2.50 | 4,625 | 8,250¹ | 12,875 |
| Laundry | 4,575 | 1.75 | 8,006 | 7,500² | 15,506 |
| Reception | 1,850 | 0.50³ | 925 | 121,100 | 13,025 |
| Maintenance | 1,850 | 0.80 | 1,480 | 9,500^{4} | 10,980 |
| Housekeeping | 4,575 | 2.00^{5} | 9,150 | 11,000 | 20,150 |
| General o/heads | __ | __ | __ | 11,250 | 11,250 |
£
1. Total budget cost allowance for 2,000 ORN 13,250
Less variable allowance (2,000 × £2.50) 5,000
Fixed cost allowance 8,250
2. £15,025 – (4,300 × £1.75) = £7,500
3. £
Total budget cost allowance for 2,000 ORN 13,100
Less fixed allowance 12,100
Variable cost allowance for 2,000 ORN 1,000
Variable cost allowance per ORN: \frac{ £1000}{2 000} £0.5
4. £11,100 – (2,000 × £0.80) = £9,500
5.\frac{(£19,600 – £11,000 )}{4,300} = £2 per visitor
(b) £550 adverse
Workings :
£
Flexible budget expenditure 113,251
Actual expenditure 114,071
Expenditure variance 550 adverse