Budget assignment

CASE Background: Super Clean is local business in the Tri-cities area. It provides cleaning services to residential households and commercial establishments. Both households and businesses sign contracts with Super Clean. As the contract, Super Clean 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 Super Clean relates to labour. They pay crew members competitive wages and benefits. The wage rate is calculated on an hourly basis and are fixed for the entire year. The next expense item is cleaning supplies. Super Clean 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, more will be 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 crew is dispatched again for a second cleaning. The hours accruing from such scenarios are not billed to the clean as this constitutes a 'service recovery'. However, the crew is paid for such hours. Super Clean maintains a record of these hours and classifies them as 'unproductive hours', or 'unbilled hours. This is calculated as a percentage of revenue earning hours (e.g. 10% of revenue generating hours). For the purpose of this assignment, assume that there is no consumption of cleaning materials when this second cleaning is being done. Budget for the year 2020: The budget for the year 2020 was prepared in December 2019 and had the following components: Revenue: The revenue is calculated as number of hours which the crew works on a site, times the contracted rate with the client. The hours worked in the residential and commercial segments are shown separately, and there is total for the combined hours worked. The revenue for each segment is arrived at by multiplying the hours for the segment times the rate. The budget is prepared for four quarters, one to four. For the first quarter of 2020, the budgeted sales hours and hourly revenue were: 2 500 Item Budgeted sales (commercial), in hours Budgeted sales (residential), in hours Budgeted selling rate (commercial), per hour Budgeted selling rate (residential), per hour 1 500 $ 40 $50 For quarters two, three and four it was projected that: Budgeted sales in hours for both commercial and residential with increase at the rate of 7% on a quarter over quarter basis. Budgeted selling rate will increase at 5% on a quarter over quarter basis for the commercial segment and 4% on a quarter over quarter basis for the residential segment. Direct Labour expense: Super Clean will pay its employees an hourly rate of $ 23 for the entire year. Cleaning supply usage: The budgeted usage is 0.3 litre / labour hour for commercial segment and 0.15 litre/ labour hour for residential segment. This is constant for the entire year. Cleaning supply expense: Budgeted expense is $5.30 per liter for the entire year. Fixed overhead: In order to support the cleaning operations, there are four items of expenditure. These are designated as overheads and their budgeted expenses are as follows: Receptionist: Budgeted expense is $ 5 800 per quarter and is the same for all the four quarters. Depreciation: This relates to the depreciation of vehicles used to transport employees to client locations. Budgeted expense is $ 9 300 per quarter and is the same for all the four quarters. Gas: Budgeted expenditure on gas is $ 6 500 and is the same for all the four quarters. Office Supplies: Budgeted expenditure on Office Supplies is $ 1 100 per quarter and is the same for all the four quarters. Actual results for the year 2020. It is now January 7, 2021 and Super Clean is comparing the actual expenses against their budget. Here is what they found. Revenue: For the first quarter of 2020, the actual sales hours and hourly revenue were: 3 200 Item Actual sales (commercial), in hours Actual sales (residential), in hours Actual selling rate (commercial), per hour Actual selling rate (residential), per hour 1 700 $ 42 $56 For quarters two, three and four it was noticed that: Commercial: Actual sales recorded a 5% increase in Q2 over 01. 03 was 4% higher than 02.04 was 3% higher than 03. Residential Actual sales recorded a 5% increase in Q2 over 01.03 was 4% higher than 02.04 was 3% higher than Q3 Direct Labour expense: Super Clean paid its employees an hourly rate of $ 21 for the entire year. Cleaning supply usage: The actual usage was 0.78 litre / labour hour for commercial segment and 0.14 litre/labour hour for residential segment. This is constant for the entire year. Cleaning supply expense: Actual expense was $5.10 per liter for the entire year. Fixed overhead: In order to support the cleaning operations, there are four items of expenditure. These are designated as overheads and their budgeted expenses are as follows: Receptionist: Actual expense was $ 6 200 per quarter and is the same for all the four quarters. Depreciation: This relates to the depreciation of vehicles used to transport employees to client locations. Actual expense was $ 9 300 per quarter and was the same for all the four quarters. Gas: Actual expenditure on gas was $ 6 200 and was the same for all the four quarters. Office Supplies: Actual expenditure on Office Supplies was $ 1 000 per quarter and was the same for all the four quarters Unproductive (unbilled) factor: Cleaning crews had to work 10% over the revenue generating hours to attend to complaints and do a second cleaning. These hours were not billable to clients, but Super Clean 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 One Input Database Two Input Database Three Static Budget Activity Populate the section A4:G24 with data from the above case and develop the budget parameters. Populate the section K4:Q35 with data from the above case and develop the actual parameters, Populate the section A7:F29 with data from the spreadsheet 'Input Database and develop the static budget Populate the section A7:F29 with data from the spreadsheet 'Input Database' and develop the actual budget Populate the section A7:F29 with data from the spreadsheet 'Input Database and develop the flexible budget Four Actual Budget Five Flexible Budget Six Var Analysis -Static and Flex Seven Var Analysis - Static and Flex Populate the section AS:E26 with data from the spreadsheets 'Static Budget' and 'Actual Budget' and develop the static budget variance. Populate the section G5:126 with data from the spreadsheet 'Actual Budget' and 'Flexible Budget' and develop the flexible budget variance. Using applicable data complete the analysis of Material variances for both the commercial and residential segments Using applicable data complete the analysis of Material variances for both the commercial and residential segments. Eight Material variances Nine Labour variances Other guidelines: Data should be entered in the 'Input Database spreadsheet only. For all other spreadsheets, you have to 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 'F formula. Part B: In week 9, 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 SUPER CLEAN. The CEO is concerned regarding ethical practices and needs your advice. In your role as a consultant, write a memo explaining What budgetary slack' is? Possible budgetary items where 'budgetary slack can be applied?' If you consider 'budgetary slack' as ethical or unethical? Give reasons. Structure of the memo: Word limit: 300 words maximum Arial or Calibri font Parameters - budget Parameters - actual Quarters Quarters Quarters 2 3 4 Year Growth % 1 2 3 4 year Quarter over quarter change>>>> Sales ( hours): Budgeted total sales in hours Budgeted commercial sales in hours Budgeted residential sales in hours Selling rate( $/hr): Selling price per hour (commercial) Selling price per hour (residential) Sales ( hours): Actual total sales Actual sales - commercial Actual sales - residential Selling rate ( $/hr): Actual selling price - commercial Actual sellling price - residential Direct labour expense ( $/hr): Direct labour expense ( $/hr): Cleaning Supply usage ( litre / labour hour): Commercial Residential Actual Cleaning Supply usage ( litre / labour hour): Commercial Residential Cleaning Supply expense ($/litre)): Actual Cleaning Supply expense ( $/litre)): Fixed overhead: Receptionist Depreciation Gas Office Supplies Actual Fixed overhead: Receptionist Depreciation Gas Office Supplies Total no. of hours actually paid to employees Breakdown: Commercial Residential Actual hours worked Direct labour cost Unproductive (unbilled) factor SUPER CLEAN Operating Budget for the period Jan - Dec '18 Quarters 3 1 2 4 Year Marks 2 Sales budget Sales Commercial Sales residential Total sales 2 Direct material budget Variable costs commercial Variable costs residential Total variable costs 2 Labour budget Commercial Residential Total labour 2 Fixed Overhead: Receptionist Depreciation Gas Office Supplies Total Total 8 SUPER CLEAN Operating results for the period Jan - Dec '18 Quarters 3 1 2 4 Year Marks 2 Direct material budget Variable costs commercial Variable costs residential Total variable costs 2. Labour budget Commercial Residential Total labour 2 Fixed Overhead: Receptionist Depreciation Gas Office Supplies Total Total 8 SUPER CLEAN Flexible budget for the period Jan - Dec '18 Quarters 3 1 2 4 Year Marks Sales budget Sales Commercial Sales residential Total sales 2 2 Direct material budget Variable costs commercial Variable costs residential Total variable costs 2 Labour budget Commercial Residential Total labour 2 Fixed Overhead: Receptionist Depreciation Gas Office Supplies Total Total Super Clean Inc Static Budget Variance Actual for the year Static for the year Variance U/E Marks Flexible Budget Variance Actual for the year Flexible for the year Variance U/E F Sales budget Sales Commercial Sales residential Total sales 1 1 1 Direct material budget Variable costs commercial Variable costs residential Total variable costs 1 1 1 Labour budget Commercial Residential Total labour 1 1 1 1 Fixed Overhead: Receptionist Depreciation Gas Office Supplies Total 1 1 1 1 Total 14 Direct Materials - Commercial Marks Actual Quantity -AQ Actual Rate -AR Total Actual Quantity -AQ Standard Rate -SR Total Standard Quantity - SQ Standard Rate - SR Total Price Variance Quantity Variance Total Variance Explanation for Quantity variance: Explanation for price variance: Direct Materials - Residential Actual Quantity -AQ Actual Rate -AR Total Actual Quantity -AQ Standard Rate -SR Total Standard Quantity - SQ Standard Rate - SR Total Price Variance Quantity Variance Total Variance Explanation for Quantity variance: Explanation for price variance: Total 16 Labour - Commercial Marks Actual Hours - AH Actual Rate -AR Total Actual Hours - AH Standard Rate -SR Total Standard Hours - SH Standard Rate - SR Total Rate Variance Efficiency Variance Total Variance Explanation for Efficiency variance: Explanation for rate variance: Labour - Residential Actual Hours - AH Actual Rate -AR Total Actual Hours - AH Standard Rate -SR Total Standard Hours - SH Standard Rate - SR Total Rate Variance Efficiency Variance Total Variance Explanation for Efficiency variance: Explanation for rate variance: Total 16