Rensing Groomers is in the dog-grooming business. Its operating costs are described by the following equations:

Grooming supplies (variable) . y = $0 + $5x

Direct labor (variable) .. y = $0 + $14x

Overhead (mixed) y = $10,000 + $1x

Milo, the owner, has determined that direct labor is the cost driver for all three categories of costs.

Instructors Note: Above equations translated for us math-challenged. The grooming supplies equation means that there is -0- fixed amount but the variable part of this cost is $5 times the activity. In the last one, overhead has a $10,000 fixed component plus a ($1 x activity level) variable component.

Instructions

(a) Prepare a flexible budget for activity levels of 550, 600, and 700 direct labor hours.

(b) Calculate total cost per direct labor hour for each of the activity levels, 550, 600 and 700.

(c) The groomers at Rensing normally work a total of 650 direct labor hours during each month. Each grooming job normally takes a groomer 1.3 hours. Milo wants to earn a profit equal to 40% of the costs incurred. Determine what he should charge each pet owner for grooming.

(a)

Activity Level Direct Labor Hours	550	600	700
Variable Costs:
Grooming Supplies
Direct Labor
Overhead
Total Variable Costs
Fixed Costs:
Overhead
Total Costs

(b)

Var $ Cost (above)	Divided by Activity Level	Total Cost per DLH

(c)

1st
2nd
3rd
4th

1^st Cost formula: 10,000 + 20x (where x = DLH). In English $10,000 + ($20 x DLH)

2^nd ... Number of clients calculation: 650 DLH / 1.3 DLH ea grooming job = # clients.

3^rd Take 1^st answer and divide by 2^nd answer to get cost per client.

4^th Take cost per client and add 40% markup to get the Charge per client.