Last month, the town of New Hen established a Parking Enforcement Unit (PEU) to write parking citations. New Hen budgeted $3,600 for the unit’s first 30 days, and estimated PEU officers would write 50 citations per day in those 30 days. In addition, New Hen estimated that officers would work 12 minutes per citation written. In actuality, PEU officers wrote an average of 45 citations per day and worked 15 minutes per citation written. New Hen also paid PEU officers $0.40 more per hour than budgeted. Calculate the volume, quantity, price, and total expense variances, and indicate whether they are favorable or unfavorable.

The answers for each step are given below.

Explanation:

Let's extract the details:

Proposed budget and expected expenses will be on one side of the calculation while Actual budget and expenses will be on the other side.

    PROPOSED                                                                ACTUAL

50 citations per day                                           45 citations per day

12 minutes per citation                                        15 minutes per citation

FIRST STEP:

Calculate how much per hour the PEU officers were paid in the proposed budget. This will be needed, to make comparison or check variance with the actual amount paid per hour (which will be $0.4 + the answer you get here).

12 minutes to hours is =  1/5 hours = 0.2 hours

Total budget period    =  30 days

[0.2k x (50x30)] = $3,600    where k is price or payment per hour

NOTE THAT 0.2k = payment per citation in dollars per hour

                     (50 x 30) = total number of citations for budget period

300k = $3,600

k = 3600/300  = $12

So this is the hourly payment under the estimated budget plan.

SECOND STEP:

The wage per hour here (in the actual scenario) is 12 + 0.4 = $12.4

Now calculate the total amount spent in the actual scenario; using the same formula structure as above. Remember to convert the time per citation here. 15 minutes = 1/4 hours = 0.25 hours

Number of citations per day is also different here and that's 45.

[0.25k₁ x (45 x 30)] = Y

Y is what we're looking for here and definitely, we have the value for k₁ so input it to solve for Y.

[0.25 x 12.4 x 45 x 30] = $4,185

THIRD STEP:

Indicate whether the actual budget was favorable or unfavorable.

In Economics, a favorable budget is one where income exceeds expenditure (or expected labor output exceeds proposed payment) while an unfavorable budget is one where expenditure exceeds income (or proposed payment exceeds labor output).

In this case, the PEU officers spent more time to write each citation AND wrote less number of citations than expected. In addition to this, they demanded or were paid more dollars per hour of work.

This leads us to the conclusion that the budget was unfavorable. The town of New Hen ended up spending more than planned and receiving less citations than planned.

You're welcome!

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