Doggone Groomers is in the dog-grooming business. Its operating costs are descri
ID: 2443935 • Letter: D
Question
Doggone Groomers is in the dog-grooming business. Its operating costs are described by the following formulas:Grooming supplies (variable) y = $0 + $4x
Direct labor (variable) y = $0 + $12x
Overhead (mixed) y = $8,000 + $1x
Puli, the owner, has determined that direct labor is the cost driver for all three categories of costs.
Instructions
(a) Prepare a flexible budget for activity levels of 550, 600, and 700 direct labor hours.
DOGGONE GROOMERS
Flexible Budget
Activity level
Direct labor hours
550
600
700
Variable costs
Grooming supplies $ $ $
Direct labor
Overhead
Total variable costs
$
$
$
Fixed costs
Overhead
Total fixed costs
Total costs
$
$
$
(c) Calculate the total cost per direct labor hour at each of the activity levels specified in part (a). (Round answers to 2 decimal places, e.g. 10.50.)
550 direct labor hours $
600 direct labor hours $
700 direct labor hours $
(d) The groomers at Doggone normally work a total of 650 direct labor hours during each month. Each grooming job normally takes a groomer 1 1/4 hours. Puli wants to earn a profit equal to 40% of the costs incurred. Determine what she should charge each pet owner for grooming. (Round computations and answer to 2 decimal places, e.g. 10.50.) $
Explanation / Answer
(a)
Flexible Budget
Particulars 550 600 700
Variable Costs
Grooming Supplies ($4 per unit) $2,200 $2,400 $2,800
Direct labor ($12 per unit) $6,600 $7,200 $8,400
Overhead ($1 per unit) $ 550 $ 600 $ 700
Total Variable Costs $9,350 $10,200 $11,900
====== ====== ======
Fixed Costs
Overhead $8,000 $8,000 $8,000
====== ====== ======
Total Costs $17,350 $18,200 $19,900
(b)
The flexible budget gives the data at particular activity level, whereas in actual it is not possible to remain on the particular activity level. Flexible Budget provides the information on a range of activities, in which the business normally works. Therefore, the flexible budget is more informative than the static budget.
(c)
Flexible Budget
Particulars 550 600 700
Variable Costs
Grooming Supplies ($4 per unit) $2,200 $2,400 $2,800
Direct labor ($12 per unit) $6,600 $7,200 $8,400
Overhead ($1 per unit) $ 550 $ 600 $ 700
Total Variable Costs $9,350 $10,200 $11,900
====== ====== ======
Fixed Costs
Overhead $8,000 $8,000 $8,000
====== ====== ======
Total Costs $17,350 $18,200 $19,900
Cost per Direct labor Hour $31.55 $30.33 $28.43
(d) The total cost of 650 labor hours
Variable cost per labor hour Total
Grooming Supplies $4 $2,600
Direct labor $12 $7,800
Overhead $1 $650
Total Variable cost $11,050
Add : Fixed Costs $8,000
Total Cost $19,050
Per Hour cost $29.31
Since a job takes 1.25 Hours the cost of one job = $36.63
Add : profit margin (40%) $14.65
Selling price $51.28
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