Accounting Essentials for Hospitality Managers by Guilding Chris

Author:Guilding, Chris.
Language: eng
Format: epub
ISBN: 978-1-135-02101-6
Publisher: Taylor & Francis (CAM)

a) Direct labour variance

The variance between actual labour cost and labour cost in the flexible budget comprises two main elements: the labour rate variance and labour efficiency variance. A labour rate variance arises when the actual wage rate differs to the budgeted wage rate. A labour efficiency variance results when more or less than the budgeted time is taken to complete a particular task.

Direct labour variance worked example: To illustrate the analysis of labour variance, we will return to the Poplars Hotel example presented in Exhibit 10.1. We can see that in April the hotel was 200 rooms short of selling its budgeted target of 2,000 rooms. Imagine that the budgeted cost of labour was based on an anticipated $10 per hour wage rate and an expectation that each room sold would generate 36 minutes of room cleaning work. In addition, assume accounting records indicate that in April labour worked 1,350 hours at a rate of $8.90 per hour.

This provides us with enough information to determine Poplars’ labour rate and efficiency variances for April. We can take a systematic approach to calculating these variances by using the matrix presented as Exhibit 10.2. A particular strength of this approach will become evident as you progress through this section, as the same matrix format is used in all of the variance analyses described in this chapter.

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