Acct Question – Calculate Variances

Hello,

I hope you’re well. I need the following question answered:

a) Prepare a detailed reconciliation of planned profit to actual profit. i.e., calculate the necessary variances

b) What other, if any, key performance indicators or information would you want to have when assessing the performance?

Please see attached text for context.

Thank you!

For the exclusive use of K. Kelley, 2023.
HBSP Product Number TCG051
THE CRIMSON PRESS CURRICULUM CENTER
THE CRIMSON GROUP, INC.
El Conejo Auto Clinic (A)





Alex Yianna, Administrator of El Conejo Auto Clinic, was in the process of preparing his budget for the
upcoming fiscal year. He had obtained a great deal of information from his supervisory staff, and now it was up
to him and his staff assistant to put the information together in a format that could be presented to the company’s
board of directors.
BACKGROUND
El Conejo Auto Clinic had been formed over five years ago. Initially its only line of business was muffler
replacements. As the quality of original equipment mufflers improved, and as Mr. Yianna realized that the
company’s customers were interested in more than just muffler replacements, El Conejo expanded its product
lines. Currently, the company offered four services (or “jobs,” as they frequently were called): muffler
replacement, tune-up, brake replacement, and lube and oil change.
A distinctive feature of the clinic was its use of mechanic assistants. Since much of the work traditionally
done by mechanics did not require the skill of a trained mechanic, Mr. Yianna realized that he could offer lower
prices to his customers by having mechanics only perform those tasks that required their specialized skills. The
remaining tasks were done by lower-skilled, and hence lower wage, mechanic assistants.
Another distinctive feature of the clinic was its testing function. Mr. Yianna had purchased some highly
sophisticated equipment that allowed him to test the work of every job to make sure that there were no defects.
The equipment that tested muffler replacement, for example, assessed the quality of the seals between the
muffler and tailpipes to make sure that they would not rupture after only a few hundred miles of driving.
Similarly, other equipment tested the timing of an engine following a tune-up.
FINANCIAL INFORMATION
Mechanics earned $30 per hour; mechanic assistants earned $15 per hour. Both figures included fringe
benefits. For ease of computation, supplies were classified into “units.” Each job required a different number of
units, and the units for different types of job cost different amounts each. For example, a supply unit for the
Muffler Replacement job cost $25, whereas supply units for Tune-ups and Brake replacements were only $10
each. For a Lube and Oil Change, the supply unit cost was $2.50. Testing was somewhat simpler, since each test
cost an average of $15.
Exhibit 1 shows the supervisors’ collective projections for the annual volume for each of the clinic’s four
jobs. It also shows, for each job, the budgeted price, minutes needed by mechanics and mechanic assistants, and
the number of supply units and tests needed. The clinic also had fixed expenses of $280,000, none of which
could be attributed to specific jobs.


With this information in hand, Mr. Yianna felt he was ready to prepare the first cut at the budget. He asked
his staff assistant, Athena Marco, to prepare a separate budget for each job, as well as for the clinic overall, and
to calculate the contribution to fixed costs provided by each job.
____________________________________________________________________________________________________________
This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illustrate either effective
or ineffective handling of an administrative situation.
Copyright © 2017 by David W. Young and The Crimson Group, Inc. To order copies or request permission to reproduce this
document, contact The Crimson Press Curriculum Center at 617-497-9600 (Voice) or 617-576-7693 (Fax), or go to
www.thecrimsongroup.net. Under provisions of United States and international copyright laws, no part of this document may be
reproduced, stored, or transmitted in any form or by any means without written permission from The Crimson Group.
If you believe that you have an illegal copy of this document, please notify the Crimson Press Curriculum Center of this fact
This document is authorized for use only by Kacey Kelley in FA23 ACCT 6318 Analyzing Accounting Data for Strategic Decision Making (Internal) taught by Sharon Hsiao, Northeastern
immediately. Thank you.
University from Oct 2023 to Dec 2023.
For the exclusive use of K. Kelley, 2023.
Assignment
1.
Prepare a budget according to the specifications provided by Mr. Yianna in the last paragraph of the case. Organize your figures so
that they will be easily understandable by the board of directors.* What do you think of the results?
2.
Assuming the board has directed Mr. Yianna to revise the budget to produce a profit of $200,000 before taxes, what options does
he have to effect the required changes? Which options seem the easiest to implement?
3.
How, if at all, should Mr. Yianna change the process by which the budget is prepared?
* Try to set up a spreadsheet to calculate the budget. Make it as formula-driven as possible. This will allow you to easily test
assumptions in answering Question 2.
EL CONEJO AUTO CLINIC (A)
Exhibit 1. Budget Data
Anticipated number of jobs
Muffler replacement

Tune-up

Brake replacement

Lube and oil change

3,000
2,000
1,000
500
Price per job
Muffler replacement

Tune-up

Brake replacement

Lube and oil change

$200
$100
$150
$40
Mechanic minutes per job

Muffler replacement

Tune-up

Brake replacement

Lube and oil change



20
10
20
5
Mechanic assistant minutes per job
Muffler replacement



Tune-up



Brake replacement



Lube and oil change



30
20
30
10
Supply units per job
Muffler replacement

Tune-up

Brake replacement

Lube and oil change









1
4
8
4
Number of Tests per job
Muffler replacement

Tune-up

Brake replacement

Lube and oil change









3
2
2
0
____________________________________________________________________________________________________________
This document is authorized for use only by Kacey Kelley in FA23 ACCT 6318 Analyzing Accounting Data for Strategic Decision Making (Internal) taught by Sharon Hsiao, Northeastern
El Conejo Auto Clinic (A)

2 of 2
University from Oct 2023 to Dec 2023.