Holzmann Cleaning Services has prepared the following statement of comprehensive income for the year ended December 31, 20X6. Sales are based on 21,335 direct labour hours and 1,066,757 square metres cleaned or an average of 50 square metres per hour. Sales, wage and benefit costs are affected by the total square meters cleaned.

Holzmann Cleaning Services Statement of comprehensive income For the year ended December 31, 233(3 Revenue $321 ,351 Cost of sales: Wages and benets 231 ,324 Cleaning supplies 33,541 Transportation costs [including fuel, insurance, depreciation, and 33,231 maintenance} Salaries of operations managers 123 333 Total cost of sales 523,443 Gross margin $331,235 Operating expenses: Training $55,533 Billing 123,533 Depreciation [excluding transportation vehicles] 2,353 Repairs and maintenance (excluding transportation} 333 Utilities and telephone 4,323 Rent 1 3,323 Interest and bank charges 1,353 Business fees 4,233 Advertising and promotion 2,523 Insurance {excluding transportation} 2,?33 Total operating expenses $213,533 Net income {Loss} $37,525 Cost pools and activities for activity-based costing analysis used for December 31, 20316, statement of comprehensive income Activity Cleaning supplies commercial Cleaning supplies residential Billing Transportation Training Operations management Total expenses The industry benchmark for prot is 25% of revenue. Cost driver Square metres Square metres Number of invoices Number of kilometres Number of hours Number of managers Cost pool $70,833 Total activity 640,054 1T,?09 426,?03 129,500 30,231 55,500 120,000 $423,322 3,054 53,1 24 554 3 Corn mercial 540.054 1.052 15.93? 416 Residential 42 5.?03 1 .992 37.1 B? 1 33 2 In preparation for the budget for 20X7, Holzmann has gathered the following information: 20X7 expected growth data Change in rates: Increase in charge-out rate to both commercial and residential clients to $39 per hour Labour wage and benefit rate per hour $13.46 Expected price increase in commercial cleaning supplies costs per square metre (no change in the residential cleaning supplies cost per square metre) 9% Expected increase in transportation costs per kilometre 9% Expected increase in advertising of the commercial service $1,000 Change in activity for ABC analysis: Increase in square metres 7% Increase in number of invoices (commercial only, see option 2 below for residential) 5% Increase total kilometres driven 8% All other expenses will be unchanged except as noted in cost reduction options. All costs except operations management are variable costs