question archive Phoenix Management helps rental property owners find renters and charges the owners one-half of the first month’s rent for this service
Phoenix Management helps rental property owners find renters and charges the owners one-half of the first month’s rent for this service
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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 2019, Phoenix expects to find renters for 100 apartments with an average first month’s rent of $1,070. Budgeted cost data per tenant application for 2019 follow: Professional labor: 1.5 hours at $18.00 per hour Credit checks: $70.00 Phoenix expects other costs, including the lease payment for the building, secretarial help, and utilities, to be $5,000 per month. On average, Phoenix is successful in placing one tenant for every three applicants. Actual rental applications in August 2019 were 270. Phoenix paid $8,100 for 390 hours of professional labor. Credit checks went up to $75 per application. Other costs in August 2019 (lease, secretarial help, and utilities) were $5,600. The average first monthly rentals for August 2019 were $1,200 per apartment unit for 90 units.
Required: 1. (a) What is the total operating income variance for August 2019? (b) What is the total flexible-budget variance for the month? (c) What is the sales volume variance for the month?
2. Determine the professional labor rate and labor efficiency variances for August 2019.
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ANSWER (1):
| Amount in $ | |||
| a.) | Operating income as per Actual data | 74,050 | |
| Less: Operating income as per Static Budgeted data | 72,900 | ||
| Total Operating income variance | 1,150 | ||
| Variance Type | Favorable | ||
| b.) | Operating income as per Actual data | 74,050 | |
| Less: Operating income as per Flexible budget data | 65,110 | ||
| Total flexible budget variance | 8,940 | ||
| Variance Type | Favorable | ||
| c.) | Operating income as per Flexible budget data | 65,110 | |
| Less: Operating income as per Static Budgeted data | 72,900 | ||
| Total flexible budget variance | -7,790 | ||
| Variance Type | Unfavorable |
ANSWER (2):
| Standard price per Hour | 18 | ||
| Actual price per Hour (8,100 / 390 ) | 20.77 | ||
| Standard labor Hours ( 270 x 1.5 ) | 405 | ||
| Actual labor Hours | 390 | ||
| Actual price per Hour | 20.77 | ||
| Less : Standard price per Hour | 18 | ||
| Difference | 2.77 | ||
| x Actual labor Hours | 390 | ||
| Labor price (rate) variance | 1,080 | ||
| Variance Type | Unfavorable | ||
| Standard labor Hours | 405 | ||
| Less :Actual labor Hours | 390 | ||
| Difference | 15 | ||
| x Standard price per Hour | 18 | ||
| Labor efficiency variance | 270 | ||
| Variance Type | Favorable | ||
| Workings | |||
| Actual data | |||
| Units | 90 | ||
| Amount in $ | |||
| Revenue (1,200 x 90) | 108,000 | ||
| Less: Expenses | |||
| Professional labor | 8,100 | ||
| Credit Check (270 x 75) | 20,250 | ||
| Other fixed cost | 5,600 | ||
| Total expense | 33,950 | ||
| Operating income | 74,050 | ||
| Static Budgeted data | |||
| Units | 100 | ||
| Expected application (100 x 3) | 300 | ||
| Amount in $ | |||
| Revenue (1,070 x 100) | 107,000 | ||
| Less: Expenses | |||
| Professional labor (300 x 1.5 x 18) | 8,100 | ||
| Credit Check (70 x 300) | 21,000 | ||
| Other fixed cost | 5,000 | ||
| Total expense | 34,100 | ||
| Operating income | 72,900 | ||
| Flexible budget data | |||
| Units | 90 | ||
| Expected application (90 x 3) | 270 | ||
| Amount in $ | |||
| Revenue (1,070 x 90) | 96,300 | ||
| Less: Expenses | |||
| Professional labor (270 x 1.5 x 18) | 7,290 | ||
| Credit Check (270 x 70 ) | 18,900 | ||
| Other fixed cost | 5,000 | ||
| Total expense | 31,190 | ||
| Operating income | 65,110 |
