Performance analysis-

• Consideration on cost centers and revenue centers
  

Open with Google Docs Page 2 APPENDIX I 2017 BUDGET FOR THE CAPITAL PORTRAITS STUDIO Revenue Studio fees Note Ottawa $260,000 Gatineau 130,000 W N Digital images and prints 585,000 Total revenue 975,000 Variable costs Photography 195,000 Digital images and prints 351,000 Total variable costs 646.000 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.Page 3 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.Open with Google Docs Page 4 APPENDIX III NOTES FROM DISCUSSIONS WITH STAFF 1. Photographers The company has two full-time photographers on staff (in addition to Suzanne) and hires additional contractors if there are conflicting schedules. Anne Hawley and Jon Lafferty have been with the company for five years. For the first few years after CPS was incorporated, Suzanne did all the photography herself. She hired Anne and Jon when she found she could not keep up with the demand. The full-time photographers are salaried employees. 2. Production staff Peter Grouse manages the digital imaging and technical side of the business. In addition to producing all of the images in the production facility, he manages a full-time staff of three computer technicians and is responsible for ensuring the company has the latest in electronic and digital equipment to maintain its competitive edge. "We developed new processes this year to keep down costs," he told you. "I just don't understand why Suzanne thinks this was a bad year. We managed to hold related costs to 57% of digital images and print revenue and that was a lot better than we had done before." 3. Sales associates After Peter's team processes the pictures, sales associates send proofs to customers. To prevent customers from simply printing out pictures from the proofs, the company encrypts the files so the pictures cannot be saved or printed until a contract has been created to determine which pictures the customer wants to purchase. One full-time and three part-time employees work in sales, all of whom are paid a salary. If a customer is only purchasing a few images, the price per image starts at $100. As the volume increases, the price goes down to a minimum of $50 per image. Suzanne is not involved in sales and just lets the sales group work on its own. She likes to focus on work in the studio. "We have guidelines but we try to be flexible," the sales associates told you. "We try to find a price that the customer will be happy with." They were not able to provide you with any detail on conversion, sales targets or individual performance.Open with Google Docs Today is January 11, 2018. You, CPA, just started working for The Capital Portrait Studio (CPS), a well-known photography studio in the nation's capital. The company was founded 10 years ago by Suzanne Quah and has seen tremendous growth during that time. The main studio is located in downtown Ottawa and there is another location used for outdoor sessions in the Gatineau Hills area, about 30 minutes from the city. The rural setting is becoming popular with customers who like to have their photos taken in a natural setting. Suzanne has always focused on the studio side of the business. She likes to be behind the camera much more than sitting behind a desk. "That's where you, CPA, come in," she explained. "I need some help understanding the numbers." In the past year, CPS barely broke even. "I thought things were going well, but the numbers really took me by surprise. Until I know what is going on, no one is going to get any salary increases." Suzanne provided you with the budget she put together last year (Appendix I). "I wonder if I should have revised the budget since our bookings were lower than expected." Suzanne asked you to prepare a variance analysis on the financial results, providing specific suggestions on how to improve the company's overall financial performance. "I would also like you to look at the way I have organized the business. I didn't really put any thought into it when we started. We have just added people when we saw the need. I was talking to a friend last week and she was telling me that the company she works for is organized into cost centres and revenue centres. Is that something CPS should consider?" The Ottawa location is currently operating close to capacity. It has two studios on the main floor of the building, office space and a production facility downstairs. The two acres of land in the Gatineau Hills area were purchased two years ago. CPS started using the Gatineau location for outdoor photography last year. It is a wooded lot with an old barn and two small sheds that serve as a convenient background for pictures. To make the best use of that investment, Suzanne would like to fix up the barn and winterize it so it can be used as a small indoor studio, The renovations would cost $150,000 but it would give the company the ability to use the location all year. Before committing any money to the project, Suzanne wants to be sure it is viable. She would like to recover the cost of the renovations within five years. "Do some investigation and we can get together next week so you can provide me with your recommendations." You gathered additional financial information (Appendix II) and met with other staff (Appendix Ill) as part of your investigaPage 5 APPENDIX Ill (continued) NOTES FROM DISCUSSIONS WITH STAFF 4. Office manager Cindy Strauss is responsible for the scheduling for both locations. She tries to accommodate customer requests but that task has become more difficult with two locations "We did not really account for bad weather or traffic. People show up late or get lost and then we get two groups arriving at the same time. We try to make time for both groups but it has been hard." If the weather is bad, the Gatineau sessions have to be rescheduled because all of the work is currently done outdoors. "We did not factor in the extra cost of dealing with a site that is dependent on the weather," Cindy explained. "If our staff drives out to the Gatineau location and the customers do not show up, we do not recoup those extra costs." Since the company's advertising focuses on Suzanne as the face of the business, many customers expect her to be the sole photographer for their shoots. Cindy explained, "That has been a problem because some people do not want to deal with anyone else. They ask for Suzanne by name and they get really mad if I suggest they consider Anne or Jon instead." Turnover has not been a problem for the company but Cindy thinks that may change if Suzanne does not consider salary increases for the staff this year.Case_grou *Course Her docs.google.com/spreadsheets/d/10tAl9ZoHiUEAQ8Wpp8KL63ZbyvuYXTgE_OVXe5X_180/edit#gid=0 enus (Alt+/) 100% - CA$ % .0_ .00 123 - Default (Ari... 10 D E G AO#1 Preparing a variance analysis on the financial results, providing specific suggestions 1. Comparison of Actual and Budgeted Operating Income Capital Portraits Studio Analysis of Operating income For the year ended Dec 31, 2017 Annual Operating Income Master (Static) Budget Variances Units 540 742 $2020 Ottawa 504 530 $260 Gatineau 36 212 $176U Total revenue $ 709,000 100% $ 975,000 100% $266,000U Total variable costs 407,000 57% S 546,000 77% $139,000U Contribution Margin 302,000 43% S 429,000 44% $127,00OU Fixed Costs 300,000 42% S 300,000 42% SOU Operating Income 2,000 0% $ 129,000 13% $127,00OU 2. Flexible Budget Variance and Sales Volume VarianceH Total variable costs 407,000 S 467,600 $60,60OF $ 546,000 $78,400E Contribution Margin 302,000 S 367,400 $65,40OF $ 429,000 $61,60OF Fixed Costs 300,000 300,000 SOU S 300,000 SOU Operating Income 2,000 $ 67,400 $65,40OU $ 129,000 $61,600U * Detailed calculation is attached in the last part of the report under Exhibition 1 3. Explanation and suggestions - Flexible variance : The variable costs represents the Favorable variance of $61,600 because the 500 studio sessions were planned along with 30 weddings. However, only 480 studio sessions and 24 weddings at the Ottawa location were held in the last year. The revenue displays an Unfavourable variance of $126,000. the possible reasons for this were difference in the budgeted and actual events. Also, another reason for the decrease in revenues is that some customers were offered 50% discount on their studio fee which happened 20 times last year. Sales Volume Variance: The unfavourable variance in Sales Volume Variance is mainly due to the difference in the budgeted and actual units may be possibly because: 1. In Ottawa: the budgeted shows were 530 (500 for studio sessions and 30 for the weddings). But only 480 studio sessions and 24 weddings happened 2. Gatineau: The budgeted bookings for this location was 212 (200 in outdoor sessions and 12 weddings). However, as the location is on countryside, on the rural location, away from the city, so the actual events happened were 187 (outdoor sessions were 175 and weddings were 12 only). - Suggestions to improve the company's overall financial performance- 1. Comparatively less studio sessions and weddings were held than planned at the Ottawa location which resulted in an unfavourable variance when it comes to revenue earned. Therefore, the company must reduce its budgeted events. Also, the 50% discount that was offered to the customers must be reduced. 2. The budgeted projections for the Gatineau location must be reduced as the location is in the countryside which is away from the city. AO#? Performance analysis on both cost centres and revenue centres and renovation Sheet1 ~ WhatsApp Image. WhatsApp Image....jpeg WhatsApp Image....jpeg WhatsApp Image....jpeg Image...jpeg e here to searchmenus (Alt+/) 100%- CA$ % .0 .00 123- Default (Ari.. 10 BISA X B C E F G H Operating Income 2,000 0% 129,000 13% $127,000U 2. Flexible Budget Variance and Sales Volume Variance Budgeted Actual Flex Budget Flex Budget Static Sales Vol amount per unit Total Revenues Total Revenues Variance Total Revenues Variance and Costs and Costs and Costs Volume Units 691 691 SOU 742 $51U Ottawa 504 504 530 Gatineau 187 187 212 Revenue Total revenue $ 736,400 $835,000 $98,600U S 975,000 $140,00OU Sales Discount 27,400 SO $27,40OU $ SOU Total Revenue after sales discount 709,000 S 835,000 $126,000U $ 975,000 $140,000U Variable costs Photography S 165,560 $167,000 $1,440F $ 195,000 $28,00OF Digital images and print S 241,440 $300,600 $59,160F S 351,000 $50,40OF Total variable costs S 407,000 S 467,600 $60 60OF S 546,000 $78,400E Contribution Margin 302,000 367,400 $65,40OF $ 429,000 $61,60OF Fixed Costs 300,000 300,000 SOU S 300,000 Operating Income 2,000 67,400 $65.40OU 129,000 $61,60QU * Detailed calculation is attached in the last part of the report under Exhibition 1 3 Fynlanation and sunnestinne