“Adding time to your day” is the slogan of Holzmann Cleaning Services (HCS). The company was started by Gretel, who began offering cleaning services to support herself while she was in university studying for a business degree. At the age of 21 she was determined to be known as more than a simple labourer who needed to fund her education. She researched different cleaning products and methodologies to deliver a fast and thorough service to her clients.
Ten years later, the business has grown in size and has expanded throughout the city and local rural areas. Gretel is the majority shareholder of the private corporation with two other shareholders. The company consists of a full-time staff of three operations managers (one for commercial operations and two for residential operations), an administrative staff of three, and part-time cleaning staff of over 200 university students, called cleaning agents. Not only is Gretel able to provide high-quality cleaning services to her clients, but she is also able to offer university students part-time work, reducing the need for student loans.
You are a partner in Martine’s consulting business and Martine has contracted you to assist her with completing the analysis and developing a final report for Gretel. Prepare a report and supporting exhibits for Gretel, president of HCS, to analyze HCS’s current cost allocations and provide advice for the future. It should include the following
1. Prepare a 20X7 operating budget for both commercial and residential operations, based on the details provided in Exhibit 4. The operating budget will require adjustments to the activity-based analysis provided in requirement 2. Indirect general costs should be allocated 60% to commercial and 40% to residential.
(6 marks) Provide a discussion of the results in your report. (4 marks)
2. (8 marks)
a) Revise the 20X7 operating budget statements to a contribution format. Assume the following are variable costs:
i. Wages and benefits
ii. Cleaning supplies
iii. Transportation costs
All remaining costs are fixed. (1 mark)
Based on the 20X7 budget:
b) Calculate the break-even point in sales dollars based on the 20X7 sales mix.
c) Calculate the sales revenue required to achieve a 25% profit margin. (2 marks)
d) Provide comments on the results in the report. Your discussion should include comments on the margin of safety (1 mark) and the limits of this analysis as it pertains to HCS. (2 marks)
3. To assist Gretel in submitting bids for new work, use the 20X7 budget to prepare an average markup on variable cost analysis for both commercial and residential cleaning services. Using the markup percentages, calculate the sales price of a typical commercial and residential contract (see Exhibit 5). (8 marks) Also provide a short discussion of the results in your report. (2 marks)