Case 14-1: Pet Groom & Clean (Pg&C)
After analyzing past customer preferences, in 2010 store 88 initiated a promotion to increase mid-week sales to even out demand. In the past approximately 80% of services were incurred on Friday, Saturday and Monday, compared to 20% incurred on Tuesday, Wednesday and Thursday. To even out the demand for services, the store initiated a program to decrease the service price to $18 on Tuesdays, Wednesdays, and Thursdays and increase the price to $30 on Fridays, Saturdays, and Mondays. Through careful scheduling of staff, budgeted labor time was also decreased from 2,500 hours to 2,250 hours per employee.
In addition to the budgeted operating statement and the actual operating statement for 2010, to increase the analysis a
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Training hours should have totaled 18 for the year (three employees and six hours of training each), but only 11 hours were incurred. While this shows as a favorable variance on the operating income variance breakdown, a lack of training could decrease the quality of service provided at store 88. Advertising expenses were $1200 higher than the flexible budget. Due to the new program and pricing, the advertising price variance is attributed to the increase in marketing to inform customers about the program and change. PG&C recommends that advertising expenses are 1% of sales, but the manager of store 88 chose to increase advertising to a higher rate. Service development is charged to the store as a function of total sales. Since total sales were higher than the flexible budget projected, this number is respectively higher. Accounting, insurance, taxes and management overhead are paid by the head office of PG&C and are allocated on a formula which combines store size, store sales, and the age of the store. In 2010 those costs were all higher than the amount budgeted. Accounting and insurance were $1,750 higher (15%), taxes were $1,000 higher (9%), while management overhead was $13,000 higher (25%). Since these costs are assigned by the PG&C home office, it is difficult for the store to project the costs. Since labor usage decreased over the year, the employee benefit price variance is $675 favorable in comparison to the flexible budget.
The total flexible-budget