The WIX Company Civil Engineers consists of two divisions. The divisions are Wat

Question

The WIX Company Civil Engineers consists of two divisions. The divisions are Water and Waste Water. The company sells engineering services to various customers. The following are the bill rates for the various staff classifications: Vice President $200/hour Senior Engineer $180/hour Staff Engineer $150/hour. The two divisions expect to bill the following hours: water-10000 hours, vice president at 10% of the time, 30% of Senior Engineer time and remaining to Staff Engineers. waste water-6000 hours, vice president at 20% of the time, 20% of Senior Engineer time and remaining to Staff Engineers. The Direct Labor costs per hours are as follows: Vice President $80/hour Senior Engineer $60/hour Staff Engineer $40/hour. The utilization for each staff members are as follows: Vice President 60%

Explanation / Answer

1. Static budget

2. Flexible budget

Tota l profit

Level 2 variance

Budgeted profit minus actual profit = 1071840 - 1023660 = 48180 unfavourable

Level 3 variance

Total cost variance = 1564160 - 1612340 = 48180 unfavourable

Sales volume variance = nil

Labour cost variance = 1292160 - 1340340 = 48180 unfavourable

Labour rate variance = nil

Labour efficiency variance = Budgeted labour cost minus actual labour cost = 1292160 - 1340340 = 48180 unfavourable

3. Recommenndations for additional revenue and profitability

1. Increase labour efficiency by improving utilisation of work hours of vice president, removing idle time and having performance incentives and bonus programs.

2. Increase billable hours by marketing of company services and getting additional work.

3. Do cost cutting in fixed costs like rent, admin salaries etc.

Approaches to increase overall utilisation of staff

1. Performance incentives

2. Performance based compensation

3. Set clear targets for staff

4. Use technology to reduce time consumed of staff

5. Train employees regularly

Water Waste water Revenue Vice president hours 200 1000 200000 1200 240000 Senior engineer 180 3000 540000 1200 216000 Staff engineer 150 6000 900000 3600 540000 1640000 996000 Total revenue 2636000 Labour cost Vice president 80 4584 365120 Senior engineer 60 6562 393720 Staff engineer 40 13333 533320 Total labour cost 1292160 Admin salaries 90000 Rent 100000

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