# 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 1,941 Unfavorable REVENUES Room Rentals 1,200,138 1,136,619 63,519 Unfavorable 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 3,738 Unfavorable Laundry 1,310 1,240 70 Unfavorable Vending 3,900 3,708 192 Unfavorable 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 11,460 Favorable 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 5,856 Favorable Natural Gas 16,800 13,428 3,372 Favorable Water 33,000 21,919 11,081 Favorable 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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