After analyzing past customer preferences, in 2010 store 88 initiated a promotion to increase mid-week sales to even out demand. In the past approximately 80% of services were incurred on Friday, Saturday and Monday, compared to 20% incurred on Tuesday, Wednesday and Thursday. To even out the demand for services, the store initiated a program to decrease the service price to $18 on Tuesdays, Wednesdays, and Thursdays and increase the price to $30 on Fridays, Saturdays, and Mondays. Through careful scheduling of staff, budgeted labor time was also decreased from 2,500 hours to 2,250 hours per employee. In addition to the budgeted operating statement and the actual operating statement for 2010, to increase the analysis a flexible budget was created. The flexible budget adjusts revenues and expenses to the actual output level achieved. Here increased sales units could be analyzed given the budgeted rates for variable costs and fixed expenses. The flexible budget enables an analysis of the variances related to selling price, sales volume, sales mix, variable cost per unit, and total fixed costs. The breakdown of total operating income variance is attached for your reference. Below is a detailed analysis of the findings. ANALYSIS
In 2010 store 88 increased pet grooming services from the 10,000 budgeted to 10,500. This five percent increase is attributable to the promotion to increase mid-week sales. By lowering the service price for mid-week services and increasing the price for weekend services, the strategy was to even out demand and labor throughout the week. While service units increased by five percent, gross sales increased by eleven percent. The average unit price increased from $25 to $26.40. The increase in the average unit price shows that demand remained high for the weekend services, given that more customers chose the $30 service over the $18 service. By separating services into two categories, the store created a sales...
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