Alvin Jefferson is the manager of the Storm Lakes branch of a small credit union located in Birch Run, Michigan. One of Alvin’s duties is to monitor the cost of tellers. Scheduling tellers is complicated because transaction volume (i.e., deposits, withdrawals, inquiries) tends to vary significantly by the day of the week and the time of day. There also are activity surges prior to long weekends and holidays. Alvin’s challenge is to staff enough tellers so that the lines are manageable and customers do not get upset, but not so manageable that tellers are idle. Moreover, Alvin’s budget is for each teller to process 20 transactions per hour. Alvin’s credit union only uses part-time employees as tellers and budgets to pay them $12.50 per hour.

This past November, the tellers at Alvin’s branch worked a total of 1,520 hours, received $19,000 in wages, and processed 32,000 transactions. Because of the impending holiday season, the volume of transactions in November was significantly higher than the average monthly volume of 24,000 transactions.

Required:

a. What is the planned (master budget) cost of tellers in an average month when transactions are expected to equal 24,000? What is the planned (flexible budget) cost of tellers for this past November when transactions equaled 32,000?

b. What is the difference between the master budget teller costs for an average month and the actual teller costs for November? Do you believe it is appropriate to evaluate Alvin’s performance for the month of November using this variance? Why or why not?

c. Calculate the teller price and teller quantity variances. Based on these variances, does it appear that Alvin did a good job managing teller costs for the month of November?