2017 BUDGET FOR THE CAPITAL PORTRAITS STUDIO Revenue
Studio fees		Note
Ottawa	$260,000		1
Gatineau	130,000		2
Digital images and prints	585,000		3
Total revenue		975,000
Variable costs
Photography	195,000		4
Digital images and prints	351,000		5
Total variable costs		546,000
Contribution margin		429,000
Operating costs		300,000
Expected income before tax		$129,000

Notes:

1. The Ottawa location expected 500 studio sessions at $400 each and 30 weddings at $2,000 each.

2. The Gatineau location was expected to bring in 50% of the Ottawa location's revenue in its first year.

3. Revenue from digital images and prints was budgeted at 150% of studio fee revenues.

4. Variable costs for a studio session total $200. Variable costs for a wedding session are $1,000.

5. Production costs were expected to be 60% of the digital images and prints revenue.

APPENDIX II

SELECTED FINANCIAL INFORMATION

• There were 480 studio sessions and 24 weddings at the Ottawa studio last year.

Seventeen customers complained about being assigned to other photographers (Anne

Hawley and Jon Lafferty) when they expected to be dealing with Suzanne. Their regular

studio fees were discounted by 50%.

• Cindy Strauss (office manager) made bookings for 200 outdoor sessions and 12 weddings

at the Gatineau location. All of the wedding parties arrived but only 175 of the other

customers showed up. When there were scheduling conflicts with people arriving late for

regular studio sessions, both groups of customers received a 50% discount on their studio

fee, which happened 20 times last year.

• Actual digital images and prints revenue was $402,400 last year.

• In 2017, total variable costs were $407,000.

• Income before tax was $18,000 for 2017. The 2017 expected tax rate for CPS is 16%.

• Suzanne prepared the budget herself, using the prior year’s actual results as her guide.

She increased revenue by 10% based on what she wanted the company to achieve. The

details of the budget were not shared with the rest of the staff.

• The Gatineau location could accommodate up to 400 studio bookings and 30 weddings

each year if the barn was renovated. Volume would be expected to increase at a rate of

20% per year. CPS expects a return on its investment of 10%.

• The company would invest in more marketing and hire a site manager to make sure people

are familiar with the location. Annual costs for the marketing would be $10,000 and the

salary for the site manager would be $50,000.

Requirement:

Revising the budget