College Painters was founded by Sam and Dean, two seniors in high school, to help pay their way through college. Fully bonded and insured, College Painters specializes in faux finishes, such as marbleizing, sponging, ragging and washing. While Sam and Dean used to do all the work themselves, now ten years later, they have crews performing the work. They visit worksites every day to be sure that jobs meet their quality standards and well as meeting prospective customers and preparing bids.
Sam and Dean budget for 25,000 square feet (sf) of business a month. The average job is 500 sf., and for such a job, Sam and Dean expect to incur the following costs:
Materials (paint)
1.6 gallons @ $25.00 per gallon
Materials (supplies)
$10.00
Labor (includes surface prep and applying the paint and faux finish)
16 hours @ $15.00 per hour
To arrive at a selling price, Sam and Dean mark up the budgeted paint cost by 50% and the budgeted labor cost by 100% and the budgeted cost of supplies. Thus the starting point for constructing a bid is:
$550 = (1.5 x 1.6 x $25) + (2.00 x 16 x $15) + 10
Of course, Sam and Dean adjust the starting price to reflect prevailing market conditions. For example, they charge more for a rush job or provide a discount if a customer is unhappy with the result. Finally, Sam and Dean budget $2,000 per month for fixed costs such as office rent, phones, advertising, and the company car.
For this past month (October), College Painters earned $25,333 in revenues for several different jobs totaling 24,000 sf. College Painters used 72 gallons and 765 hours of labor during the month. The 765 hours of labor cost $11,475, which includes the 32 hours it took to clean up the mess in a customerâs home because a painter accidentally tripped over a full can of paint.
According to their paint supply store, they spent $2,160 on paint and $480 on supplies during the month. The bill for paint for October was higher than normal because Sam and Dean decided to try a newer, more expensive paint in the hope that it would lead to improved paint and labor efficiencies. They did not think this would affect the amount of supplies used). Finally, they spent $2,250 on fixed costs during October.
5-1. What was College Paintersâ master budget profit and actual profit for October? What was their total profit variance?
5-2. Prepare a budget reconciliation report for October. Your report should include all the variances that make up the total profit variance (see notes). For this part, do not consider the costs of the accident separately.
5-3. Considering each variance, determine costs related to the accident involving the spilled can of paint. Separate the costs into out-of-pocket and opportunity costs. Revise the budget reconciliation report for October to highlight the cost of the accident.
5-4. Did switching paint increase College Paintersâ profit for October? Which variances help you in assessing the quality of this decision?
College Painters was founded by Sam and Dean, two seniors in high school, to help pay their way through college. Fully bonded and insured, College Painters specializes in faux finishes, such as marbleizing, sponging, ragging and washing. While Sam and Dean used to do all the work themselves, now ten years later, they have crews performing the work. They visit worksites every day to be sure that jobs meet their quality standards and well as meeting prospective customers and preparing bids.
Sam and Dean budget for 25,000 square feet (sf) of business a month. The average job is 500 sf., and for such a job, Sam and Dean expect to incur the following costs:
| Materials (paint) | 1.6 gallons @ $25.00 per gallon |
| Materials (supplies) | $10.00 |
| Labor (includes surface prep and applying the paint and faux finish) | 16 hours @ $15.00 per hour |
To arrive at a selling price, Sam and Dean mark up the budgeted paint cost by 50% and the budgeted labor cost by 100% and the budgeted cost of supplies. Thus the starting point for constructing a bid is:
$550 = (1.5 x 1.6 x $25) + (2.00 x 16 x $15) + 10
Of course, Sam and Dean adjust the starting price to reflect prevailing market conditions. For example, they charge more for a rush job or provide a discount if a customer is unhappy with the result. Finally, Sam and Dean budget $2,000 per month for fixed costs such as office rent, phones, advertising, and the company car.
For this past month (October), College Painters earned $25,333 in revenues for several different jobs totaling 24,000 sf. College Painters used 72 gallons and 765 hours of labor during the month. The 765 hours of labor cost $11,475, which includes the 32 hours it took to clean up the mess in a customerâs home because a painter accidentally tripped over a full can of paint.
According to their paint supply store, they spent $2,160 on paint and $480 on supplies during the month. The bill for paint for October was higher than normal because Sam and Dean decided to try a newer, more expensive paint in the hope that it would lead to improved paint and labor efficiencies. They did not think this would affect the amount of supplies used). Finally, they spent $2,250 on fixed costs during October.
5-1. What was College Paintersâ master budget profit and actual profit for October? What was their total profit variance?
5-2. Prepare a budget reconciliation report for October. Your report should include all the variances that make up the total profit variance (see notes). For this part, do not consider the costs of the accident separately.
5-3. Considering each variance, determine costs related to the accident involving the spilled can of paint. Separate the costs into out-of-pocket and opportunity costs. Revise the budget reconciliation report for October to highlight the cost of the accident.
5-4. Did switching paint increase College Paintersâ profit for October? Which variances help you in assessing the quality of this decision?
