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

Grooming supplies (variable) y 5 $0 1 $5x Direct labor (variable) y 5 $0 1 $14x Overhead (mixed) y 5 $10,000 1 $1x Milo, the owner, has determined that direct labor is the cost driver for all three categories of costs.

Instructions

(a) Prepare a fl exible budget for activity levels of 550, 600, and 700 direct labor hours.

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

(c) Calculate the total cost per direct labor hour at each of the activity levels specifi ed 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 1.3 hours. Milo wants to earn a profi t equal to 40% of the costs incurred. Determine what he should charge each pet owner for grooming.

AppendixLO1