Jolly Cleaners offers residential and commercial cleaning services. Clients pay
ID: 2568222 • Letter: J
Question
Jolly Cleaners offers residential and commercial cleaning services. Clients pay a fixed monthly fee for the service, but can cancel the service at the end of any month. In addition to the employees who do the actual cleaning, the firm includes two managers who handle the administrative tasks (human resources, accounting, and so on) and one dispatcher, who assigns the cleaning employees to jobs on a daily basis. On average, residential clients pay $310 per month for cleaning services and the commercial clients pay $1,600 per month. A typical residential client requires 10 hours a month for cleaning and a typical commercial client requires 50 hours a month. In March, Jolly Cleaners had 40 commercial clients and 210 residential clients. Cleaners are paid $12 per hour and are only paid for the hours actually worked. Supplies and other variable costs are estimated to cost $6 per hour of cleaning. Other monthly costs (all fixed) are $53,000 SG&A, including managerial and dispatcher salaries, and $3,300 in other expenses. Jolly Cleaners has earned positive reviews on social media in the area and the managers expect to grow. For April, they forecast a 5 percent increase in residential clients and a 10 percent increase in commercial clients.
Required: Prepare a budgeted income statement for Jolly Cleaners for April.
JOLLY CLEANERS
Budgeted Income StatementFor the month of April
Revenues: Commercial
Residential
total revenue
Expenses: Cleaner compensation
Supplies
SG&A
Other expenses
Total expenses
Income:
Explanation / Answer
Jolly Cleaners Flexible Budget March April Amount Amount Revenue: Commercial Clients ($1,600 * 40) $ 64,000 ($1,600 * 44) $ 70,400 Residential Clients ($310 * 210) $ 65,100 ($310 * 220.5) $ 68,355 Total Revenue $ 1,29,100 $ 1,38,755 Expenses: Cleaner Compensation (4,100 * $12) $ 49,200 (4,405 * $12) $ 52,860 Supplies & Other Variables (4,100 * $6) $ 24,600 (4,405 * $6) $ 26,430 SG & A Fixed $ 53,000 Fixed $ 53,000 Other Expense Fixed $ 3,300 Fixed $ 3,300 Total Expenses $ 1,30,100 $ 1,35,590 Net Operating Income (Loss) $ (1,000) $ 3,165 Total Hours of Cleaning = Commercial Requirement + Residential Requirement = ((50 * 40) + (10 * 210)) = 4,100 Total Commercial Clients Expected in April = (40 + (10% * 40) = 40 + 4 = 44 Total Residential Clients Expected in April = (210 + (5% * 210) = 210 + 10.5 = 220.5 Total Hours of Cleaning expected in April = ((50 * 44) + (10 * 220.5)) = 4,405
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