The Harmonious Horn is a musical$-$instrument repair shop that specializes in the repair and restoration of band and orchestral instruments. The shop is owned and managed by Mr$.$ John Hylma and two partners, who are all well regarded for their exacting repair work and attention to detail. Professional musicians from all over the country send their instruments to Harmonious Horn for minor adjustments and major overhauls. Demanding concert and travel schedules place great stress on the delicate parts of musical instruments, and professional musicians are careful to keep their instruments in peak condition.

Currently, the Harmonious Horn offers four main services: major and minor repairs and restorations of band instruments such as saxophones and trumpets, and major and minor repairs and restorations of orchestral instruments such as violins and cellos. Historically, minor repairs were billed at a rate of $$35$ an hour for band instruments and $$32\mathrm{.}50$ an hour for orchestral instruments. Major repairs and restorations are performed under individual flat$-$fee arrangements that are quoted to customers based on the type of work needed for each instrument. The three owners performed all major repairs and restorations in the shop. Minor repairs of band instruments were performed by hourly employees, and minor repairs of orchestral instruments were performed by three full$-$time salaried employees.

In addition, rush jobs for minor repairs were occasionally performed for local customers only. These jobs were subcontracted to a retired employee, who performed the repairs for $$25$ an hour. Rush jobs were billed under flat$-$fee arrangements that averaged $$150$ per job. The average rush job took three hours to complete.

Hylma had just received a call to inquire about the cost to repair a valve on a trumpet. After Hylma quoted an estimated price for the job, the caller said, $$Thank you, but I$$ll be going to Incredible Instrument Repair. I have heard they give good service, and their prices are lower than yours.$$ Unfortunately, this was not the first time Hylma had heard similar comments over the past few months. Incredible Instrument Repair opened across town and now Harmonious Horn had competition for business. To attract repair jobs and avoid layoff, they had lowered prices for minor repairs for the first time ever. The budgeted verses actual operating results were showing the impact of these price decreases.

The Annual Operating Plan $($or budget$)$ was prepared at the beginning of the current year by the CPA. The business was small and relatively simple, allowing the CPA to develop the operating budget using specific volume and revenue data for each product line. The following information was used to prepare the annual plan:

Based on prior years$$ work orders, the shop was budgeted to perform the following in the coming year:

# of Jobs

Avg Price$/$Hrs

Major band repairs

$390$

$$400$

Minor band repairs

$1,830$

$2$ hours

Major orchestral repairs

$540$

$$300$

Minor orchestral repairs

$1,560$

$4$ hours

Rush jobs

$50$

All $3$ partners were paid annual base salaries of $$60,000$ plus bonuses of $5\%$ of sales revenue

Hourly employees were paid $$20$ an hour for work performed

Salaried employees were paid annual base salaries of $$38,000.$

If the number of minor orchestral repairs exceeded $1,560$ jobs the orchestral repairers were paid a flat rate of $$80$ per job for the excess jobs.

Replacement parts and other supplies were budgeted at $$50$ for each major job and $$10$ for each minor job $($including rush jobs$),$ based on experience.

Approximately $35\%$ of the repairs were on instruments shipped to the shop from out of town. Average shipping to return the instruments back to the owners was $$30$ per package.

Advertising, depreciation, office rent, and miscellaneous expenses were budgeted as fixed expenses.

The actual operating$/$profit statement was prepared by the CPA at the end of the year.

The Harmonious Horn

Planned versus Actual Operating Results

Plan

Actual

Revenue

$ $656,400$

$ $664,170$

Owner Salaries $-$ Base

$180,000$

$180,000$

Owner Salaries $-$ Bonus

$32,820$

$33,209$

Band Repairers Wages

$73,200$

$104,400$

Orchestral Repairers Salaries

$114,000$

$121,200$

Rush Job Wages

$3,750$

$3,850$

Replacement Parts

$80,900$

$92,050$

Delivery

$45,885$

$53,961$

Contribution