Lone Star Lodging Harvard Case Solution & Analysis

Lone Star Lodging Case Study Solution

Flexible Budget

A flexible budget is created by inserting each line item in the monthly budget. The flexible budget is calculated through multiplying the variable cost / unit by the actual volume of production. The available rooms and rented rooms are variables, which could be changed. Also the room rentals and revenue allowances are variables, because allowance could vary with performance. Apart from the housekeeper expense, payroll taxes, total supplies and total other expense, all of these expenses are fixed. It is because of the reason that the housekeepers would be paid in accordance with number of rooms cleaned. Also, the payroll taxes is variable because it is 8.5 percent of amount paid to employees. The total room revenue is favorable variance, because flexible budget is lower than the actual budget, whereas the total revenue is also favorable. The housekeeper expense, payroll taxes expense, total supplies and total other expenses are unfavorable variance. Furthermore, the flexible budgeted total expense of the company is lower than the actual budget, and the flexible budgeted profit for the year is higher than the actual profit, hence resulting in an unfavorable variance.

Conclusion

Based on the above analysis, it could be said that the company’s operational  management is not working efficiently, as their variance are un favourable. The company’s actual expenses and costs are higher than its budgeted amounts, therefore the company should pay attention to its operations. The company needs to work efficiently and effectively to manage its investments, costs and expenses. As an addition to it, according to the analysis; the company’s profit’s variance is also un favourable because its actual profit is lower than its budgeted profit. Therefore, in the meeting they should discuss the ways by which they can overcome the cost management issues.

 

Appendix

 Budget  Actual  Variance/Difference  Favorable or Unfavorable
Rooms Available 45,990 45,990                               –
Rooms Rented 27,376 25,435                           1,941Unfavorable
REVENUES
Room Rentals 1,200,138 1,136,619                         63,519Unfavorable
Revenue Allowance (1,280) (1,060)                            (220)Favorable
Total Room Revenue 1,198,858  1,135,559  63,299 Unfavorable
Internet Access 4,900 5,534                            (634)Favorable
Vouchers 5,000 1,262                          3,738Unfavorable
Laundry 1,310 1,240                              70Unfavorable
Vending 3,900 3,708                             192Unfavorable
Total Other 15,110  11,744  3,366 Unfavorable
TOTAL REVENUE 1,213,968  1,147,303  66,665 Unfavorable
EXPENSES
Total Front Office 100,800 109,523                         (8,723)Unfavorable
Total Housekeeping 100,816 104,782                         (3,966)Unfavorable
Total Other-Personnel Payroll 45,781 52,714                         (6,933)Unfavorable
Gross Payroll 247,397 267,019 (19,622)Unfavorable
Total Benefits Expense 58,412 46,952                         11,460Favorable
Total Personnel Costs 305,809  313,971  (8,162)Unfavorable
Total Supplies 26,007  38,063                  (12,056)Unfavorable
Total Travel and Meals 4,500 5,062                            (562)Unfavorable
Total Other Expense 16,768 17,912                          (1,144)Unfavorable
Other External Services 600 722                            (122)Unfavorable
Total Miscellaneous Operating Expenses 21,868  23,696  (1,828)Unfavorable
Property Marketing 6,000  4,807                     1,193 Favorable
Total Repair and Maintenance Expenses 46,720  52,552                    (5,832)Unfavorable
Electricity 42,000 36,144                          5,856Favorable
Natural Gas 16,800 13,428                          3,372Favorable
Water 33,000 21,919                          11,081Favorable
Total Energy 91,800  71,491  20,309 Favorable
Total Other Utilities 52,620  46,133                     6,487 Favorable
TOTAL EXPENSES 550,824  550,713  111 Favorable
PROFIT 663,144  596,590  66,554 Unfavorable

 

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