The Holcomb Hotel is a 200-room hotel located in a residential section of Kingston, Ontario. It is an older hotel of distinction that is very popular with those who appreciate the amenities of the older style of service. 

While the Holcomb is a respected hotel, it has not always been a profitable one. Competition from newer hotels and motels in the area, plus the simple inefficiencies of running a hotel in the “old style,” has placed pressure on management to improve efficiency without impairing service. As a result, the newly appointed general manager of the Holcomb is attempting to tighten cost control. 

The Holcomb operates its own laundry facilities instead of contracting with a laundry service as most modern hotels do. The general manager has been examining the operating results of the laundry for June, the month just ended. The budget for the laundry called for operating expenses of $9,222 at an occupancy rate of 70 percent for all types of rooms. The actual occupancy rate for the 30-day month was 75 percent, or 4,500 room-days instead of the 4,200 room-days budgeted. The higher-than-expected occupancy rate would, of course, cause proportionately higher costs in the laundry, but the actual expenses of $11,209 were higher than expected. The budgeted and actual expenses were as follows: 

To help her understand the reasons for the deviations from budget, the general manager assembled the following information from several sources within the hotel: 

1. The hotel has two types of rooms, standard and superior. Standard rooms are expected to average six kilograms of laundry (bed linen and towels) per day, while superior rooms are expected to generate an average of ten kilograms per day. 

2. In June, the 120 standard rooms had 65 percent occupancy, while the 80 superior rooms had 90 percent occupancy. 

3. In June, the laundry washed 38,760 kilograms of bed linen and towels. The laundry can process 70 kilograms of laundry per hour. 

4. The laundry is staffed by one permanent full-time employee who is paid $15.60 per hour (including fringe benefits) for 7.5 hours a day for six days a week. On Sundays, the full-time person is replaced by a local university student who is paid the same rate for the same number of hours. In total, the full-time employee and his Sunday replacement receive $3,510 for a 30 day-month. Hourly employees are also retained, at a cost of $12.00 per hour. 

5. The laundry is supervised by the assistant housekeeper. One-third of her salary is allocated to the laundry. In May, the assistant housekeeper received a raise from $2,100 per month to $2,400 per month. 

6. Routine maintenance on the washers and dryers is covered by a maintenance contract. In June, a motor on one of the washing machines burned out and had to be replaced. 

7. The space charge allocates the hotel’s total variable costs of electricity and water to user departments. The allocation to the laundry is $0.12 per room-day of occupancy. 

Required

Prepare an analysis of the difference between the budgeted and actual expenses of the laundry department that explains the reasons for the variances.

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Budget Actual Labour $5,922 $7,315 Soap and supplies Supervision 1,596 1,898 700 800 Maintenance and repairs Space charge 500 656 540 504 Total $9,222 $11,209