Phoenix Management helps rental property owners find renters and charges the owners one-half of the first months

Phoenix Management helps rental property owners find renters and charges the owners one-half of the first month’s rent for this service. For August 2010, Phoenix expects to find renters for 100 apartments with an average first month’s rent of $700.

Budgeted cost data per tenant application for 2010 follow:

• Professional labor: 1.5 hours at $20 per hour.

• Credit checks: $50.

Phoenix expects other costs, including lease payment for the building, secretarial help, and utilities, to be $3,000 per month. On average, Phoenix is successful in placing one tenant for every three applicants.

Actual rental applications in August 2010 were 270. Phoenix paid $9,500 for 400 hours of professional labor. Credit checks went up to $55 per application. Other support costs in August 2010 were $3,600. The average first monthly rentals for August 2010 were $800 per apartment unit for 90 units.

Revenue function	0.5	the first month’s rent
Expected # placements (volume)	100	apartments
Average first month’s rent	$700.00
Professional labor:
hours	1.5
rate per hour	$20.00
Credit checks (per application)	$50.00
Other costs per month	$3,000
Success rate (placements):
tenant for every	1
applicants	3
Actual rental applications, August	270
Labor cost incurred, August	$9,500
Hours of professional labor	400
Actual wage rate/hour	$23.75
Actual credit check charge/application	$55.00
Actual other support costs	$3,600
Actual first month's rent (avg.)	$800
Actual rentals (placements), August	90

Required

1. Prepare a profit-variance report similar to text Exhibit 14.4.

Compute the total flexible-budget variance and the sales volume variance for Phoenix’s operations in August 2010.

2. Determine the professional labor rate and efficiency variances for August 2010.

EXHIBIT 14.4

Breakdown of Total Operating-

Income Variance

3. What nonfinancial factors should Phoenix consider in evaluating the effectiveness and efficiency of professionallabor?

Transcribed Image Text:

Total Master (Static) Budget Variance $50F Flexible-Budget Sales Volume Variance Variance $1,150F $1,100U Detailed Calculations Master budget Number of apartments rented Revenue per apartment rented Total revenue Less: Variable costs 100 $700 2S350 $35,000 Professional labor: (1.5 hr.lapplication x $20/hr.) x 300 applicants$ 9,000 Credit check: $50/appl. x 300 applicants Contribution margin Less: Other expenses (lease, secretarial help, utilities) Operating income 15,000 24,000 $11,000 3,000 $8,000 lexible-budget Total revenue Less: Variable costs 90 rentals x $350/rental $31,500 Professional labor (1.5 x $20) x 270 application$ 8,100 Contribution margin Less: Other expenses Operating income Credit check $50/applicant x 270 application13.500 21600 $9,900 3,000 $6,900