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Bill Jenkins runs Dog Lovers Lidl a dog boarding kennels, mainly aimed at holiday makers leaving their dogs when they go away. The kernels has a capacity for 40 dogs per day. The normal rates are 22 per day for large dogs and 18 per day for small dogs. Each dog is checked on arrival to ensure that there is nothing which could be passed on to other dogs. The checks are done by a vet which costs 20 per dog per visit and a groomer charging 15 per dag per visit. These checks are essential and are paid for by Dog Lovers Ltd. If a dog requires further visits from the vet, the customer is charged at a rate of 150% of the vet's fees. For budget preparation purposes, the average stay is 10 days, although in practice the number of days may be different. To create this budget, the mix of dogs is assumed to be 50% large and 50% small. Feed costs 1.00 per day per dog irrespective of the size of the dog Bill Jenkins is not an accountant but has tried to prepare a master budget for the financial quarter to 31.12.20 based on the information above. The budget, the actual performance and the variances he has prepared are shown below: Dog Lovers Performance Report for 3 months (91days) ended 31.12.2020 Budget Standard Master Actual Variance per Dog per Budget Net Income Dayi Number of doge boarded 364 550 Number of boarding days 3640 3580 1801A)' Revenues 2 Boarding Fees 20.00 72.800 71,240 1.580 A Additional ved fees 450 450(F) Total revenues 72.800 71,690 1.110/4) Les variable expenses Feed & supplies 1.00 3,640 3,866 220(A) Veterinary fees 200 7,280 11,300 4,020 (A) Grooming fees 1.50 5,460 8.250 2.790 (A) Total variable expenses 4.50 18,380 23,416 7,0381A Contribution margin 15.50 56.420 43 274 8.1464) Lebe fixed expenses Depreciation & insurance 6,000 8,000 0 Rates, light and heat 3,000 3,200 200 (A) Repairs maintenance 1,000 400 600 (F) Labour 18,000 18,800 800A Total foxed expenses 28,000 28,400 4001A) Net Income 20 420 19.874 8.5451A) *F= Favourable A = Adverse Question continues on next page 3 (continued) Bill Jenkins is concerned about the much lower profit for the quarter compared to the budget. Except for favourable variances on foxed expenses for repairs and maintenance and the money for additional vet charges everything is unfavourable. The supplier of Feed and Supplies wamed Bill that these costs would increase by 10% (based on the figures used in the budget), so the kernels have attempted to take care not to waste food. Kernel fees charges and veterinary and grooming rates have stayed the same during the period. Required: a) Explain the purpose of standard costs and revenues using a variable (marginal cost system (3 marks) b) Bill Jenkins may not have used the correct approach to his performance report. Using any calculations you consider appropriate provide a revised financial report, induding all possible variances. In particular provide a sales mix variance broken down bry number of small and large dogs and planning and operating variance for feed and supplies (12 marks) c) Write a brief report to Bil Jenkins on the financial performance of the kernels for the quarter giving advice for the future. (5 marka) Bill Jenkins runs Dog Lovers Lidl a dog boarding kennels, mainly aimed at holiday makers leaving their dogs when they go away. The kernels has a capacity for 40 dogs per day. The normal rates are 22 per day for large dogs and 18 per day for small dogs. Each dog is checked on arrival to ensure that there is nothing which could be passed on to other dogs. The checks are done by a vet which costs 20 per dog per visit and a groomer charging 15 per dag per visit. These checks are essential and are paid for by Dog Lovers Ltd. If a dog requires further visits from the vet, the customer is charged at a rate of 150% of the vet's fees. For budget preparation purposes, the average stay is 10 days, although in practice the number of days may be different. To create this budget, the mix of dogs is assumed to be 50% large and 50% small. Feed costs 1.00 per day per dog irrespective of the size of the dog Bill Jenkins is not an accountant but has tried to prepare a master budget for the financial quarter to 31.12.20 based on the information above. The budget, the actual performance and the variances he has prepared are shown below: Dog Lovers Performance Report for 3 months (91days) ended 31.12.2020 Budget Standard Master Actual Variance per Dog per Budget Net Income Dayi Number of doge boarded 364 550 Number of boarding days 3640 3580 1801A)' Revenues 2 Boarding Fees 20.00 72.800 71,240 1.580 A Additional ved fees 450 450(F) Total revenues 72.800 71,690 1.110/4) Les variable expenses Feed & supplies 1.00 3,640 3,866 220(A) Veterinary fees 200 7,280 11,300 4,020 (A) Grooming fees 1.50 5,460 8.250 2.790 (A) Total variable expenses 4.50 18,380 23,416 7,0381A Contribution margin 15.50 56.420 43 274 8.1464) Lebe fixed expenses Depreciation & insurance 6,000 8,000 0 Rates, light and heat 3,000 3,200 200 (A) Repairs maintenance 1,000 400 600 (F) Labour 18,000 18,800 800A Total foxed expenses 28,000 28,400 4001A) Net Income 20 420 19.874 8.5451A) *F= Favourable A = Adverse Question continues on next page 3 (continued) Bill Jenkins is concerned about the much lower profit for the quarter compared to the budget. Except for favourable variances on foxed expenses for repairs and maintenance and the money for additional vet charges everything is unfavourable. The supplier of Feed and Supplies wamed Bill that these costs would increase by 10% (based on the figures used in the budget), so the kernels have attempted to take care not to waste food. Kernel fees charges and veterinary and grooming rates have stayed the same during the period. Required: a) Explain the purpose of standard costs and revenues using a variable (marginal cost system (3 marks) b) Bill Jenkins may not have used the correct approach to his performance report. Using any calculations you consider appropriate provide a revised financial report, induding all possible variances. In particular provide a sales mix variance broken down bry number of small and large dogs and planning and operating variance for feed and supplies (12 marks) c) Write a brief report to Bil Jenkins on the financial performance of the kernels for the quarter giving advice for the future. (5 marka)

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