Internal Code - MAS1643
Sam Dekkan, a part owner of the WILDWOOD CREATIONS Ltd, a maker, repairer and restorer of wooden outdoor entertainment furniture, was responsible for setting the charges for various kinds of repairs. A potential customer had called to inquire about the cost to repair an outdoor set of chairs. Dekkan gave an estimated price for the job, after which the woman thanked him and let him know that she would be going elsewhere - a competitor. Dekkan was aware that competition was increasing not only from the repair market but from the manufacturer of outdoor furniture with their low prices for new furniture. To attract repair jobs and avoid layoffs, Dekkan and his partners had lowered prices for minor repairs for the first time in a decade. Dekkan had once again looked at the budgeted and the actual Operating Profit statement. How could he tell what portion of the company’s profits were due
to the price decreases and how much was related to other factors?
In addition, Rush-jobs for minor repairs were occasionally performed for local customers only. These jobs were sub-contracted to a group of people who were retired employees of the WILDWOOD CREATIONS. They carried out the repairs for $27 an hour. Rush jobs were charged under flat-fee arrangements that averaged $160 per job. Usually, the average time that a Rush-job took was three hours to complete.
Major repairs and restorations were performed under individual flat-fee2 agreements that were quoted to customers based on the type of work needed for each piece of furniture. The three owners of WILDWOOD CREATIONS’s as well as their four employees carried out all the major Repair Jobs as well as making new furniture in the shop-factory facilities.
ACTUAL RESULTS FOR THE YEAR
At the end of the year (June 2016), Dekkan’s accountant prepared the actual Operating Profit statement shown in the last column of SCHEDULE 1. Although Dekkan knew that WILDWOOD CREATIONS had experienced significant changes during the past year, he was still shocked to discover that the company’s profit was $2,917 less than the budget for that year even though revenues had increased by $55,390. In order to understand fully the decrease in profits, Dekkan gathered the following information:
1. Owing to increased competition, major repairs were billed at $440 per job, while minor repairs jobs were billed at a fee of $60 per hour.
2. The planned and the actual number of Jobs as well as the average hours per job are presented in SCHEDULE 2 in the Appendix.
3. On average, major repairs and restorations required more replacement parts than in past years. The replacement parts expenses for major repairs Jobs were $120 per job for the year, while for minor repair Jobs the cost was $47. The materials for new tables was $140 per table.
4. The transportation-delivery expenses were $38 per package.
5. Advertising expenses were $2,000 more than budgeted owing to an unplanned printing of flyers for the new standard design table that was now available.
6. Miscellaneous expenses, however, were $900 less than the budgeted amount.
Analyse the information about the activities and financial performance WILDWOOD CREATIONS Ltd. Prepare an Executive Report of no more than 2 pages for the owners of Wildwood Creations, setting out the overall outcomes and conclusions of your analysis which addresses the following listed requirements and issues. The two page report is to be in proper format, structure and style, and is to be accompanied by relevant Appendices. The Appendices of relevant Schedules are to be in a proper presentation format, and structured to show the relevant calculations
that support your analysis. There is no limit on the number of schedules/tables/workings that the APPENDIX contains. However, these schedules/tables and workings must be clearly formatted and understandable.