Management Accounting Project
"Adding time to your day" is the slogan of Holzmann Cleaning Services (HCS). The company was started by Gretel, who began offering cleaning services to support herself while she was in university studying for a business degree. At the age of 21 she was determined to be known as more than a simple labourer who needed to fund her education. She researched different cleaning products and methodologies to deliver a fast and thorough service to her clients.
Ten years later, the business has grown in size and has expanded throughout the city and local rural areas. Gretel is the majority shareholder of the private corporation with two other shareholders. The company consists of a full-time staff of three operations managers (one for commercial operations and two for residential operations), an administrative staff of three, and part-time cleaning staff of over 200 university students, called cleaning agents. Not only is Gretel able to provide high-quality cleaning services to her clients, but she is also able to offer university students part-time work, reducing the need for student loans.
Required:
You are a partner in Martine's consulting business and Martine has contracted you to assist her with completing the analysis and developing a final report for Gretel. Prepare a report and supporting exhibits for Gretel, president of HCS, to analyze HCS's current cost allocations and provide advice for the future. It should include the following:
1. Profit analysis: Prepare a brief overview of the 20X6 results (Exhibit 1) in the report. Your discussion should highlight significant changes between 20X5 and 20X6 operations and between 20X6 actual and 20X6 budgeted operations.
2. Costing analysis:
a) Calculate overhead applied and the resulting over- or under-applied overhead using the traditional costing approach. Base this on the existing method of allocating service overhead using direct labour hours as the allocation base. The actual wages and benefit rate was the same as budgeted at $13.20 per hour.
b) Use the regression analyses in Exhibit 3 to determine the viability of each cost driver to predict costs for cleaning supplies and transportation. This should include reasons for choosing or not choosing the regression analyses that were provided.
c) Using the regression analysis equation chosen in part b), recalculate the overhead application rate by recalculating the cleaning supplies cost into the variable and fixed components. Calculate the over- or underapplied overhead by applying the overhead using the new application rate. Provide an analysis of the differences between the two application rates. This analysis should accompany the calculations.
d) Using activity-based costing (ABC) and the information in Exhibit 2, include a partial profit analysis for commercial and residential operations. Use wages and benefits costs (allocated on the same basis as revenue), and all costs from the activity-based data to prepare a partial operating statement comparing profit margins between both commercial and residential operations.
Provide three points that highlight the reasons for the difference between cost allocations using activity-based costing and traditional costing. These points should accompany the activity-based calculations.
e) Provide overall comments on the results of these analyses in your report.
3. Prepare a 20X7 operating budget for both commercial and residential operations, based on the details provided in Exhibit 4. The operating budget will require adjustments to the activity-based analysis provided in requirement 2. Indirect general costs should be allocated 60% to commercial and 40% to residential.
Provide a discussion of the results in your report.
4. a) Revise the 20X7 operating budget statements to a contribution format. Assume the following are variable costs:
i. Wages and benefits
ii. Cleaning supplies
iii. Transportation costs
All remaining costs are fixed.
Based on the 20X7 budget:
b) Calculate the break-even point in sales dollars based on the 20X7 sales mix.
c) Calculate the sales revenue required to achieve a 25% profit margin.
d) Provide comments on the results in the report. Your discussion should include comments on the margin of safety and the limits of this analysis as it pertains to HCS.
5. To assist Gretel in submitting bids for new work, use the 20X7 budget to prepare an average markup on variable cost analysis for both commercial and residential cleaning services. Using the markup percentages, calculate the sales price of a typical commercial and residential contract (see Exhibit 5).
Also provide a short discussion of the results in your report.
6. Cash analysis:
a) Prepare a cash budget for the quarter starting July 20X6 using the information in Exhibit 6.
b) Prepare a discussion that highlights your findings in your report. What advice can you give Gretel regarding the handling of cash and her operations during this period?
7. Provide management with at least two observations you have made during your research that can be considered for future analysis. For this section, draw on your critical analysis skills to identify other opportunities or problems that management should consider.
Attachment:- Management Accounting Project.rar