Overview

Pet Paws, Inc. is a company in the business of providing pet supplies and veterinary services in the United States. The Companys headquarters are in Spanish Fork, Utah which is serviced by the Spanish Fork Airport (Springville-Woodhouse Field). There are 21 full-time employees located in the headquarters. Travel requirements are varied and usually not scheduled. Most travel is accomplished by the Chief Executive Officer, Mr. Marvin Market, the Chief Financial Officer, Mr. Jack Financial and the Chief Doctor of Veterinary Services, Dr. Hoof. Other company locations are located in 1. Great Falls, Montana, 2. New Braunfels, Texas, 3. Warrensburg, Missouri, and, 4. Tampa, Florida. Each of these locations has two veterinarians and 10 full time staff. All locations offer the full services of Pet Paws.

Assume that Pet Paws purchased a corporate aircraft and the annual aircraft operating budget was projected as depicted on page 150 of the text. Also assume the following (click on "Table 1" to expand to view the table):

Instructions

As the flight manager you are required to prepare an operating budget for Year 3 with the following assumptions:

1. There is a recession on going with the expectation that costs must be reduced, even though the industry analysts forecast otherwise.
2. The cost of fuel will increase by 5% due to OPEC.
3. Crew salary and benefits will increase by 3%.
4. Maintenance labor will increase by 2%.
5. The goal of the Chief Financial Officer (CFO) is to keep costs consistent with year 2.

The CFO has challenged you to prepare a budget which could keep the aircraft total cost per hour consistent with year 2. You must present a budget identifying how you will accomplish this goal. Please be detailed with your assumptions and with explanations as to how you reached your goal.

There is no minimum length for this assignment but you must explain and show how you reached the values for each entry your year 3 into Tables 1 above. This assignment will be submitted via a Word document or .pdf below.

The American Pet Products Association (APPA) estimated that total U.S. Pet Industry Expenditures for 2016 would be as follows (click on "Table 2, 3, 4")

Please fill out the column in Table 1 "Anticipated Year 3 Utilization (Hours)". and show work.

Pet Industry Market Size, Trends & Ownership Statistics (americanpetproducts.org)

Table 1 CEO Personal Travel CEO Individual CFO Individual Business Travel Business Travel CEO and CFO Business Travel Together Veterinarian Emergency Travel Total Utilization Year 1 Utilization 30 (hours) 130 110 50 20 340 Year 2 Utilization 40 (hours) 160 130 90 50 470 Anticipated Year 3 Utilization (hours) Flight Hours per Year 500 Cost Item 250 750 $1,200 300,000 600,000 900,000 $70 17,500 20,000 35,000 40,000 42,500 60,000 $80 Variable/Direct Costs Fuel (price x gph) Maintenance Labor (hrs/fit hr x rate) Parts Engine reserves Restoration allowance Landing/handling fees Crew expenses Catering/supplies Total Variable Costs $350 $22 $95 87,500 5,500 23,750 12,500 $466,750 131,000 11,000 47,500 18,000 $933,500 218,500 16,500 71,250 37,500 $1,400,250 $50 $1,867 Fixed/indirect Costs Crew salaries/benefits Hangar Aircraft insurance Training Other fixed expenses Total Fixed Costs $200,000 $40,000 $30,000 $28,000 $7,000 $305,000 $305,000 $305,000 $305,000 Total Costs $771,750 $1,238,500 $1,705,250 Total Cost per Hour $3,087 $2,477 $2,274 FIGURE 4.5 Annual aircraft operating budget Year Billions of Dollars Year Billions of Dollars 2016 $62.75 Estimated 2006 $38.5 2015 $60.28 Actual 2005 $36.3 2014 $58.04 2004 $34.4 2013 $55.72 2003 $32.4 2012 $53.33 2002 $29.6 2011 $50.96 2001 $28.5 2010 $48.35 2000 $27.6 2009 $45.53 1999 $24.4 2008 $43.2 1998 $23.2 2007 $41.2 1997 $22.1 Actual Sales within the Estimated 2016 Sales U.S. Market in 2015 within the U.S. Market Food $ 23.05 Billion $ 24.01 Billion Supplies / OTC Medicine $ 14.28 Billion $ 14.98 Billion Veterinary Care $ 15.42 Billion $15.92 Billion Live Animal Purchases $ 2.12 Billion $ 2.11 Billion Pet Services: Grooming & Boarding $ 5.41 Billion $ 5.73 Billion Pet Industry Market Size & Ownership Statistics e Table 4 Pet Paws Actual Sales Pet Paws Estimated within the U.S. Market 2016 Sales within the in 2015 U.S. Market Food $ 18 Million $ 18.5 Million Supplies / OTC Medicine $ 7 Million $ 7 Million Veterinary Care $ 17.7 Million $ 18.1 Million Live Animal Purchases $ 2.8 Million $ 3.1 Million Pet Services: Grooming & Boarding $ 12.4 Million $ 13.1 Million Table 1 CEO Personal Travel CEO Individual CFO Individual Business Travel Business Travel CEO and CFO Business Travel Together Veterinarian Emergency Travel Total Utilization Year 1 Utilization 30 (hours) 130 110 50 20 340 Year 2 Utilization 40 (hours) 160 130 90 50 470 Anticipated Year 3 Utilization (hours) Flight Hours per Year 500 Cost Item 250 750 $1,200 300,000 600,000 900,000 $70 17,500 20,000 35,000 40,000 42,500 60,000 $80 Variable/Direct Costs Fuel (price x gph) Maintenance Labor (hrs/fit hr x rate) Parts Engine reserves Restoration allowance Landing/handling fees Crew expenses Catering/supplies Total Variable Costs $350 $22 $95 87,500 5,500 23,750 12,500 $466,750 131,000 11,000 47,500 18,000 $933,500 218,500 16,500 71,250 37,500 $1,400,250 $50 $1,867 Fixed/indirect Costs Crew salaries/benefits Hangar Aircraft insurance Training Other fixed expenses Total Fixed Costs $200,000 $40,000 $30,000 $28,000 $7,000 $305,000 $305,000 $305,000 $305,000 Total Costs $771,750 $1,238,500 $1,705,250 Total Cost per Hour $3,087 $2,477 $2,274 FIGURE 4.5 Annual aircraft operating budget Year Billions of Dollars Year Billions of Dollars 2016 $62.75 Estimated 2006 $38.5 2015 $60.28 Actual 2005 $36.3 2014 $58.04 2004 $34.4 2013 $55.72 2003 $32.4 2012 $53.33 2002 $29.6 2011 $50.96 2001 $28.5 2010 $48.35 2000 $27.6 2009 $45.53 1999 $24.4 2008 $43.2 1998 $23.2 2007 $41.2 1997 $22.1 Actual Sales within the Estimated 2016 Sales U.S. Market in 2015 within the U.S. Market Food $ 23.05 Billion $ 24.01 Billion Supplies / OTC Medicine $ 14.28 Billion $ 14.98 Billion Veterinary Care $ 15.42 Billion $15.92 Billion Live Animal Purchases $ 2.12 Billion $ 2.11 Billion Pet Services: Grooming & Boarding $ 5.41 Billion $ 5.73 Billion Pet Industry Market Size & Ownership Statistics e Table 4 Pet Paws Actual Sales Pet Paws Estimated within the U.S. Market 2016 Sales within the in 2015 U.S. Market Food $ 18 Million $ 18.5 Million Supplies / OTC Medicine $ 7 Million $ 7 Million Veterinary Care $ 17.7 Million $ 18.1 Million Live Animal Purchases $ 2.8 Million $ 3.1 Million Pet Services: Grooming & Boarding $ 12.4 Million $ 13.1 Million