Chapter 11, Problem 11.59SC

Calculate labor variances in a hotel (Learning Objective 3)

This case is a continuation of the Caesars Entertainment Corporation serial case that began in Chapter 1. Refer to the introductory story in Chapter 1 for additional background. (The components of the Caesars serial case can be completed in any order.)

Housekeeping is a significant cost in running a hotel; housekeeping includes daily cleaning of occupied guest rooms and guest bathrooms. Before the late 2015 renovation, the Roman Tower, formerly known as the Julius Tower, had 567 rooms. What follows is a table of selected hypothetical data regarding 2015 housekeeping costs in the Roman Tower:

Data table for Roman Tower housekeeping usage5
STANDARD DATA – Roman Tower 2015
Standard hours per hotel room cleaning	0.25
Total standard housekeeping hours in 2015—Roman Tower	36,399.25
Standard average housekeeper wage rate per hour	$ 14.50
Budgeted number of rooms to be cleaned in 2015	147,375
ACTUAL DATA - Roman Tower 2015
Actual hours per hotel room cleaning	0.30
Total actual housekeeping hours in 2015—Roman Tower	43,679.10
Actual average housekeeper wage rate per hour	$ 13.50
Actual number of rooms cleaned in 2015	145,597

5 All of these Roman Tower housekeeping assumptions are hypothetical and provided for educational use only.

Requirements

1. 1. Calculate the Labor Rate Variance (LRV) for the Roman Tower housekeeping in 2015.

Hint: LRV = Actual Hours × (Actual Rate – Standard Rate). Answer the following questions about the LRV:

1. a. Is the LRV favorable or unfavorable? How do you know?
2. b. What are some possible reasons for this labor rate variance?
3. 2. Calculate the Labor Efficiency Variance (LEV) for the Roman Tower housekeeping in 2015.

Hint: LEV = Standard Rate × (Actual Hours – Standard Hours). Answer the following questions about the LEV:

1. a. Is the LEV favorable or unfavorable? How do you know?
2. b. What are some possible reasons for this labor efficiency variance?