Your client, Bugs R Gone, has requested assistance with preparation of their budget for the upcoming year while they have a part time accounting helper out on leave. The company provides pest control services to homes. There is a small office the company operates out of with a few company-owned vehicles that the pest control technicians use when they are out in the field. Other than the pesticides, sprayers, gloves, and other tools used by the technicians, the company has very little in the way of inventory/supplies.
The owner, Jack Sutton, estimates there will be approximately 5,500 jobs during the year. Each job takes approximately 2.5 hours to complete, including the technician's travel time going from one job to another. Technicians are paid $18 an hour. The company outsources the majority of its accounting work to you, but it has a part-time retired accountant helping out with some of the basics.
Overhead is allocated on the basis of direct labor hours. Variable overhead costs include materials and supplies at $4.50 per direct labor hour. Fixed overhead costs include depreciation on equipment and vehicles of $25,000 and miscellaneous other job-related expenses of $10,000. There is also indirect labor of $6,500.
Using the data above, Jack has requested you to complete the following budgets/schedules/calculations for him:
- Direct labor budget in hours and dollars;
- Budgeted overhead allocation rate based on budgeted quantity of cost drivers;
- Budgeted cost of all jobs for the year and budgeted cost of an average job;
- Revenues budget assuming each house treatment costs $100, and the instance of no charge re-treatments is 5%;
- Budgeted operating income; and
- Estimate how the business would be impacted if the company lost business and the jobs were actually 5,300 instead of 5,500.
Submit your responses in an Excel spreadsheet, neatly organized, with written summaries as needed