Rensing Groomers is in the dog-grooming business. Its operating costs are described by the following formulas:

Milo, 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.

(b) Explain why the flexible budget is more informative than the static budget.

(c) Calculate the total cost per direct labor hour at each of the activity levels specified in part (a).

(d) The groomers at Rensing normally work a total of 650 direct labor hours during each month. Each grooming job normally takes a groomer 11⁄4 hours. Milo wants to earn a profit equal to 40% of the costs incurred. Determine what he should charge each pet owner for grooming.
(CGA adapted)

Transcribed Image Text:

Grooming supplies (variable) Direct labor (variable) Overhead (mixed) y = $0 + $4x y y = $0 + $12x $8,000+ $1x