Case 14-1: Pet Groom & Clean (PG&C) David Green is considering his operating statement for 2013, which is displayed in t

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Case 14-1: Pet Groom & Clean (PG&C) David Green is
considering his operating statement for 2013, which is displayed in
the table below. David is the manager of store number 88, where he
began as one of the staff 6 years ago, and through hard work has
risen to become manager of the store. The operating report shows
his budgeted performance for the year and the actual results,
showing a net improvement of 9% over budget--$405. While his
results are positive, the small improvement over the budget does
not qualify David for the bonus program which awards a $3,000 bonus
for store managers who improve their performance over that of the
budget by 20% or more.
David manages one store in a 110 store chain of pet grooming
stores owned by Pet Groom & Clean Company (PG&C). As for
other PG&C stores, his store is open Monday through Saturday
each week; the only service provided at the store is a service in
which a pet, dog or cat, is groomed and cleaned, typically while
the customer waits. The budgeted price for the service at the
beginning of 2013 was $25. Budgeted variable costs were $2 for
materials and $9 labor cost per service, as well as other variable
costs of $1.50 per service. Materials are purchased by local store
managers, and all staff are hired and supervised by the local store
managers. Other budgeted and actual information for 2013 are shown
in the table below.
David is an ambitious and hardworking manager, who has applied
himself to the job and has looked for different ways to attract
customers and to reduce costs. For example, he noticed that most of
the company’s customers brought their pets in on Friday, Saturday,
and Monday, and the number of customers was significantly lower on
Tuesday through Thursday. In fact, David budgeted that 80% of total
demand for 2013 would be in the Friday-Monday period, and only 20%
would be in the Tuesday-Thursday period. So at the start of 2013
David began a promotion that reduced prices on Tuesday through
Wednesday to $18 in an effort to draw in more business during these
three days. Also, noting the strong demand in the Friday-Monday
period, David decided to increase the price during those days from
$25 to $30. An experienced manager, David was able to manage labor
costs so that staff were not idle, even on slow days; David
scheduled the number of staff to meet the expected demand on each
day, and because of his experience (and because his store
encouraged appointments), his forecast of demand was usually quite
accurate. Thus, labor cost is fairly treated as a variable cost for
David’s store. Labor costs consists of 3 staff who are budgeted to
work 2,500 hours per year at a budgeted pay rate of $12 per hour,
thus the total budgeted labor costs of $90,000 (= 3 × $12 × 2,500).
Through his careful scheduling of staff, and his effective
management style, Dave was able to save labor time so that each of
the three employees worked only 2,250 hours in 2013.
Other expenses include training expenses -- each staff employee
is expected to have at least 6 hours of training at the PG&C
headquarters during the year; the local store is charged $250 per
hour for this training. The local store manager determines the
amount of training time for each staff. Other expense also includes
advertising expense, which is controlled by the local managers;
PG&C recommends that advertising should be about 1% of total
sales. Service development is the cost of studying new products for
use in the stores and for the study of potential new ways to
improve the services provided at PG&C stores. Service
development is charged to each store based on the allocation rule
of 10% of store sales. Accounting, insurance costs, taxes, and
management overhead (which includes store rent and manager’s pay)
are paid at the home office of PG&C and are allocated based
upon a formula which combines store size, store sales, and the age
of the store. Employee benefits accrue to staff at the rate of 20%
of total pay. These benefit payments are contributed to a 401(k)-
type retirement plan for each employee.
The result of David’s promotional price for the Tuesday-Thursday
period was successful, as total sales increased from 10,000 to
10,500 and the Tuesday-Thursday sales increased from 20% to 30% of
total sales.
Pet Groom and Clean: Store Number 88
Operating Statement
Year Ended December 31,
2013
Actual
Budget
Gross Sales
$
277,200
$
250,000
Less Variable Expenses
Food
23,100
20,000
Labor
91,125
90,000
Operating Expenses
19,425
15,000
Total Variable Expenses
133,650
125,000
Net contribution
$
143,550
$
125,000
Other Expenses
Training Expenses
2,750
4,500
Advertising
3,200
2,000
Service Development
27,720
25,000
Accounting and insurance
13,750
12,000
Taxes
7,500
6,500
Management overhead
65,500
52,500
Employee benefits
18,225
18,000
Total Other Expenses
138,645
120,500
Net Income
$
4,905
$
4,500
REQUIRED: develop 4 TABLES that explain the performance
for the year ended December 31, 2013.
First Table: Include a table showing the following
columns: the Actual Sales, Sales Price Variance, Flexible Budget,
Volume Variance, Master Budget, Total Variance, and Controllable by
David Green.
For the rows, Gross Sales, Tue Wed Thur, Fri Sat Mon and
the Total.
A second table should be created for the Variable
Controllable cost.
This should include the rows of Materials, Labor and
other Variable expenses data for columns the Flexible Budget,
Volume Variance and Master Budget, Total Variance and Controllable
by David Green.
A third table with the Operating Costs that are
controllable by David Green.
These expenses which should be in rows are Training,
Advertising, Service Development, Accounting and Insurance, Taxes,
Management Overhead and Employee Benefits.
In the columns include the Actual Expenses, Controllable
by David Green, Not Controllable, Master Budget, Total Variance,
and Controllable by David Green.
The fourth Table for Flexible Controllable
Costs
This table should have the rows Materials, Labor, Other
expenses, and Totals and Controllable by David Green
The columns should have the Actual, Price Rate Variance,
Actual Input @ Standard Rate, Usage Variance, Flexible Budget, and
Total Variance.