Pleasant Town Chili Variance of Current Performance Analysis Memorandum Required: Prepare a memo addressed to Sam with your analysis of the current perform

Pleasant Town Chili Variance of Current Performance Analysis Memorandum Required: Prepare a memo addressed to Sam with your analysis of the current performance report, and his individual performance. In your memo, answer the following questions. Include a supporting document showing Sam the calculations you refer to in your memo. Case 3: Pleasant Town Chili
Sam Johnson, the kitchen manager for Pleasant Town Chili, is very concerned. The new owner is
starting to use variance analysis to evaluate his performance, and the first report is looking dire.
Sam is confused, since he thought the month went well. Cold weather had pushed sales higher
than expected, and he adjusted the recipe to include a bit less meat to offset the rising cost of
ground beef. Sam has asked you to help figure out why the report looks so bleak.
Pleasant Town Chili is a small restaurant in the local mall’s food court. Its main product is a
serving of chili. The only direct material in this process is the meat—beans and other shelfstable ingredients are included in the variable overhead which is allocated based on direct labor
hours. The February budget, based on standard costs, was:
• Sales 2,750 chili servings
• Direct materials: $1,375 (1/4 pound @ $2.00 per pound, times 2,750 servings)
• Direct labor: 3,561.25 (0.14 DLH per bowl @ $9.25 per DLH, times 2,750 servings)
• Variable overhead: $558.25 (VOH allocated at $1.45 per DLH, times 385 DLH
budgeted)
Actual February performance of the Riverside Mall restaurant was:
• Sales 3,125 servings
• 673 lbs of meat, for a total cost of $1,520.98
• 440 DLH, for a direct labor cost of $4,144.80
• Variable overhead expenses of $668.80
In early March, Sam received the following financial performance report:
Meat
Direct labor
Variable OH
Total
PLEASANT TOWN CHILI
Kitchen Performance Report
For the Month of February
Actual
Budget
$1,520.98
$1,375.00
$4,144.80
$3,561.25
$668.80
$558.25
$6,334.58
$5,494.50
Variance
$145.98 U
$583.55 U
$110.55 U
$840.08 U
Sam needs your help to understand this variance analysis – he’s counting on getting a raise next
year, which will be unlikely if his performance is as bad as this report indicates.
Required:
Prepare a memo addressed to Sam with your analysis of the current performance report, and
his individual performance. In your memo, answer the following questions. Include a supporting
document showing Sam the calculations you refer to in your memo.
a. Would it be appropriate for the new owner to evaluate Sam’s performance based on
this variance report? Why or why not?
b. Prepare a more useful variance analysis. Your analysis should include the total budget
variance as well as its price/rate/spending and quantity/efficiency component. The
following format might be helpful:
Account
Meat
Direct labor
Variable OH
Total
Actual
cost
$1,520.98
$4,144.80
$668.80
$6,334.58
Flexible
budget
Total Budget
Variance
Price/Rate
Variance
Qty/Efficiency
Variance
c. Summarize your findings(s) from the performance report prepared in part b (i.e., what
does your report suggest about Sam’s performance).
Rubric:
Appropriateness of current analysis
1 point
Flexible budget
2 points
DM variances
2 points
DL variances
2 points
OH variances
2 points
Evaluation of performance
1 point
OABC format
2 points
Appendix formatting and titles
2 points
Proofreading
2 points
Peer evaluations
4 points
Total
20 points

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