Joy, who runs a small electronics sales and repair business, is trying to become a better business manager. She believes she has a solid understanding of financial reporting but needs help with management accounting. She is especially confused about what manufacturing overhead is and how to allocate it to repair jobs accurately. Tracking expenses such as direct labour and direct materials on specific repair jobs makes perfect sense to her.

To ensure she covers her expenses, Joy is thinking about billing customers in a different way. She is thinking of starting at a flat rate of $30 per repair then adding on $40 per hour. Joy believes this pricing strategy would cover her two major expenses, electronics replacement parts and labour. She feels that tracking hours by quarters (15-minute increments) would be sufficient accuracy for billing purposes. The big issue is communicating the pricing method to employees- Joy is wondering if creating a mathematical formula which could be entered into the stores computers might help. She is also curious about how this might look graphically and how the graph might evolve if she were to increase the $30 flat rate and decrease the $40 hourly rate.

Joy suspects that she might be losing money on TV repairs. She feels that the fixed expenses are too high and customers are unwilling to pay much to repair a TV. It is often better to buy a new TV and scrap the old one. However, she is not sure if eliminating the TV repair service/department would actually make the business more profitable. She wants details on which factors might be relevant to the decision and why.

Finally, Joy is struggling to understand variance analysis. She wants guidance on how to determine variances and what constitutes a favourable or unfavourable variance. She doesnt fully understand why variances can be caused by discrepancy in sales volume or efficiency.

Analyze Joys business and advise her on the matters raised in the case. Make sure your recommendations are well supported by quantitative and qualitative analysis which ties to the case facts.