Contents
Overview2
Grading.2
Related textbook content:.2
Background3
Budget for the year 20214
Revenue:4
Direct Labour expense.4
Cleaning supply usage.4
Cleaning supply expense.4
Fixed overhead5
Receptionist5
Depreciation5
Gas:5
Maintenance related.5
Actual results for the year 20215
Revenue:5
Direct Labour expense.6
Cleaning supply usage.6
Cleaning supply expense.6
Fixed overhead6
Receptionist6
Depreciation6
Gas:6
Maintenance related.6
Unproductive (unbilled) factor:.6
Required7
Part A 7
Other guidelines8
Part B 8
Deliverables8
Delivery8
Marking Key and Rubric8
Overview:
In this assignment, you are provided with a case which includes data relating to static budget, flexible budget, and variance analysis. You will transcribe the data from the case and create a:
• Static budget
• Actual budget
• Flexible budget
• Static budget variance
• Flexible budget variance
• Variance analysis
You will also write a memo regarding unethical practices that can be incorporated within the budget.
Grading:
This is an individual assignment worth 20% of your final grade.
Related textbook content:
The content you are being assessed on, appears in Chapter 7 and Chapter 11 of the textbook. This content is covered in class during weeks 10,11 and 12.
CASE
Background:
Cosmos Cleaning Services (CCS) is a local business in the Tri-cities area. It provides cleaning services to residential households and commercial establishments. Both households and businesses sign contracts with CCS. As the contractor, CCS dispatches its crew to the locations. The crew performs the cleaning as per the contracts and reports back to the company main desk. The main desk then prepares the invoice and sends them to the clients. Clients have one day to pay the invoice. Sales volume can vary from one quarter to the next.
In terms of expenses, the main expense for CCS relates to labour. They pay crew members competitive wages and benefits. The wage rate is calculated on an hourly basis and is fixed for the entire year.
The next expense item is cleaning supplies. CCS accounts for cleaning supplies relative to the hours worked. For example, they estimate that cleaning supplies are consumed at a rate of 0.2 litres per labour hour. This is a good measure because the longer it takes for a site to be cleaned, the more the consumption of cleaning supplies. Cleaning supplies are procured from a prominent vendor and the cost is fixed for the entire year.
Sometimes clients are not happy about the cleaning services and register a complaint. In that case, the crew is dispatched again for a second cleaning. The hours accruing from such scenarios are not billed to the client as this constitutes a service recovery. However, the crew is paid for such hours. CCS maintains arecord of these hours and classifies them as unproductive hours, or unbilled hours. This is calculated as a percentage of revenue earning hours (eg., 10% of revenue generating hours). For the purpose of this assignment, assume that there is no consumption of cleaning materials when this second cleaning isbeing done.
Budget for the year 2021:
The budget for the year 2021 was prepared in December 2020 and had the following components:
Revenue:
The revenue is calculated as number of hours that the crew works on a site, multiplied by the contracted rate with the client. The hours worked in the residential and commercial segments are shown separately, and there is a total for the combined hours worked. The revenue for each segment is arrived at by multiplying the hours for the segment by the rate. The budget is prepared for four quarters, one to four.
For 2021, the budgeted sales hours were:
Quarter 1 2 3 4
Budgeted commercial sales in hours 2,900 3,000 2,600 2,400
Budgeted residential sales in hours 2,400 2,000 1,800 2,400
For 2021, the budgeted selling price per hours were:
Quarter 1 2 3 4
Selling price per hour (commercial) $49 $49 $49 $49
Selling price per hour (residential) $53 $53 $53 $53
Direct Labour expense:
CCS will pay its employeesan hourly rate of $29 for the entire year.
Cleaning supply usage:
The budgeted usage is 0.28 litre / labour hour for the commercial segment and 0.24 litre/ labour hour for the residential segment. This is constant for the entire year.
Cleaning supply expense:
Budgeted expense is $6.05 per litre for the entire year.
Fixed overhead:
To support the cleaning operations, there are four items of expenditure. These are designated as overheads and their budgeted expenses are as follows:
General admin related:
Budgeted expense is $6,100 per quarter and is the same for all four quarters.
Depreciation:
This relates to the depreciation of vehicles used to transport employees to client locations. Budgeted expense is $8,200 per quarter and is the same for all four quarters.
Covid related:
Budgeted expenditure on covid related overhead is $7,900 and is the same for all four quarters.
Employee Benefit related:
Budgeted expenditure on employee benefit related overhead is $3,700 per quarter and is the same for all four quarters.
Actual results for the year 2021.
It is now January 7, 2022, and Cosmos Clean Services (CCS) is comparing the actual expenses against their budget. Here is what they found.
Revenue:
For 2021, the actual sales hours were:
Quarter 1 2 3 4
Actual sales - commercial 2,700 3,200 2,300 2,600
Actual sales - residential 2,500 2,100 2,000 2,500
For 2021, the actual hourly revenue was:
Quarter 1 2 3 4
Actual selling price - commercial $47 $47 $47 $47
Actual selling price - residential $51 $51 $51 $51
Direct Labour expense:
CCS paid its employees an hourly rate of $30 forthe entire year.
Cleaning supply usage:
The actual usage was 0.30litre / labour hour forthe commercial segment and 0.26 litre/ labour hour for the residential segment. This was constant for the entire year.
Cleaning supply expense:
Actual expense was $6.15 per liter for the entire year.
Fixed overhead:
To support the cleaning operations, there are four items of expenditure. These are designated as overheads and their budgeted expenses are as follows:
General admin related:
Actual expense per quarter was as follows:
Quarter 1 2 3 4
Amount 6,000 6,100 5,900 6,300
Depreciation:
This relates to the depreciation of vehicles used to transport employees to client locations. Actual expense was $8,100 per quarter and was the same for all four quarters.
Covid related:
Actual expense per quarter was as follows:
Quarter 1 2 3 4
Amount 7,500 7,100 7,600 7,600
Employee benefit related:
Actual expense per quarter was as follows
Quarter 1 2 3 4
Amount 4,000 3,600 3,500 3,900
Unproductive (unbilled) factor:
Cleaning crews had to work 12% over the revenue generating hours to attend to complaints and do a second cleaning. These hours were not billable to clients, but Cosmos Clean Services (CCS) would pay the employees for this time they worked. For the purpose of this assignment, assume that there is no consumption of cleaning materials when this second cleaning was done.
Required:
Part A:
For this part you will use the template provided in Excel Workbook format. Complete the following steps in sequence:
Step # Spreadsheet title Activity
One Input Database Populate the section A4:G24 with data from the above case and develop the budget parameters.
Two Input Database Populate the section K4:Q35 with data from the above case and develop the actual parameters.
Three Static Budget Populate the section A7:F29 with data from the spreadsheet Input Database and develop the static budget.
Four Actual Budget Populate the section A7:F29 with data from the spreadsheet Input Database and develop the actual budget.
Five Flexible Budget Populate the section A7:F29 with data from the spreadsheet Input Database and develop the flexible budget.
Six Var Analysis - Static and Flex Populate the section A5:E26 with data from the spreadsheets Static Budget and Actual Budget and develop the static budget variance.
Seven Var Analysis - Static and Flex Populate the section G5:J26 with data from the spreadsheet Actual Budget and Flexible Budget and develop the flexible budget variance.
Eight Material variances Using applicable data complete the analysis of Material variances for both the commercial and residential segments.
Nine Labour variances Using applicable data complete the analysis of Material variances for both the commercial and residential segments.
Other guidelines:
• Data should be entered in the Input Database spreadsheet only.
• For all other spreadsheets, you must use cell references, linking data from Input Database’ or other spreadsheets. Do not enter data or calculations without cell references.
• To calculate variances, you need to use IF formula.
PartB:
• In week 10, your professor will be discussing about ethical practices during budget preparation. One such practice involves use of budgetary slack. Reflecting on this learning experience, you will write a memo to the CEO of CCS.
• The CEO is concerned regarding ethical practices and needs your advice. In your role as a consultant, write a memo explaining what unethical practices can budget preparers incorporate during budget preparation. Also provide recommendations as to how such practices can be mitigated. This should be in your own words and no external research or references are needed.
• Structure of the memo:
• Word limit: 300 words maximum (penalty for going over this limit)
• Arial or Calibri font
* Memo format
• As MS Word document (any other format will receive a zero mark)
• Memo will be verified through Turnitin.
Deliverables:
• Completed Excel workbook.
• Memo in MS Word format
Delivery:
• Upload both the items to the assigned folder in eConestoga.
• Your professor will advise you as to the due date of this assignment.
Marking Key and Rubric:
• Included within the Excel workbook.
• Please review all items in the marking key before submission and ensure they are complete.