Maid-Magic Ltd. provides household cleaning services for residential customers. With Claire Kenley as the manager for the past 10 years, the company has experienced steady growth by providing reliable, high-quality cleaning services. Despite the increase in business, the company has been experiencing reduced operating income and high employee turnover. Claire is confused and has asked you to look into the situation. Currently the company has 5 cleaning staff. On average, each staff member is paid $14 per hour and is expected to clean one house in 4 hours. The following information pertains to August 2015, when there were 23 working days per employee in the month

When investigating the company's operations, you have learned that employees are reporting an average of 4.5 hours per house. While the employees are paid by the hour, Maid-Magic charges customers a flat rate of $125 per household cleaning. As a result, any increases in operating costs are not directly passed along to the customer.
Required:
1. How many households did Claire budget for each employee? How many houses, on aver- age, did each employee actually clean? How many hours were budgeted for each employee to work? On average, how many hours did each employee actually work? How many hours were actually worked by all employees?
2. Compute the labour rate variance and the labour efficiency variance.
3. Provide Claire with some advice on what she can do to motivate the cleaning staff to be more efficient.

Transcribed Image Text:

Actual Budget Houses cleaned 230 260 $28,750 $32,500 Revenues Variable costs: Labour 16,965 585 12,880 520 Cost of cleaning supplies Contribution margin Fixed costs 15,350 14,950 2,400 $12,950 2,400 $12,550 Operating income