(08)_APADMS_2510_Winter_2009_Final_Examination

4 doggone groomers flexible budget for 2009 dogs

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Unformatted text preview: levels of 165 and 175 dogs groomed. [4] Doggone Groomers Flexible Budget for 2009 Dogs groomed per month 165 Grooming revenue $9 900 Variable operating costs 1 650 Contribution margin 8 250 Fixed operating costs 1 150 Operating income $7 100 175 $10 500 1 750 8 750 1 150 $7 600 c) Puli uses your answer to a) to forecast expenses for 2009. As it turned out, April of 2009 was a slower month than expected. A total of only 150 dogs were groomed and operating costs for the month were $2 800. Calculate the Flexible Budget and the Sales Volume variances. [4] Actual operating income: $60 × 150 − $2 800 = $6 200 Budgeted operating income at level of 150 dogs groomed: ($60 − $10) × 150 − $1 150 = $6 350 Budgeted operating income at level of 175 dogs groomed: $7 600 Flexible budget variance: $6 200 − $6 350 = $150 U Sales volume variance: $6 3500 − $7 600 = $1 250 U Static budget variance: $150 + $1 250 = $1 400 U d) Puli is wondering what to make of the variances you have calculated. Can you explain? [3] Operating income dropped by $150 as a result of lax cost control. Operating income dropped by $1 250 as a result of decrease in activity. Operating income dropped by a total of $1 400 as a result of both. Puli may have little control over the general slowing down of the economy in 2009. But she should be able to keep a closer watch over her costs and not to allow costs to further drag down her profits. e) Puli had a talk with the manager of the local branch of “Pets ‘r’ groomed” who is running out of capacity and need to outsource some of the dog grooming services (10 services per month) due to a boom in their non-dog business. Pets ‘r’ groomed manager offered Puli the following deal: Pets ‘r’ groomed will pay Puli $30 per dog groomed, but Puli has to incur the costs to pick up and return the dogs. To do the transportation of dogs, she will need to equip her van for $1,200 and pay $5 per trip (either pick up or return) to cover the costs of gas and driver salary. Explain if this is a good deal for Puli. [4] Sales price $30 Variable cost (as determined in a) $10 Transportation variable costs $10 Contribution margin $10 Allocated relevant fixed costs $10 Net margin in 1 year $0 Total fixed costs $1,200 / 10...
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