Sunshine Window Washers (SWW) provides window-washing services to commercial clients. The company has enjoyed considerable growth in recent years due to a successful marketing campaign and favorable reviews on service-rating Web sites. Sunshine owner Sam Davis makes sales calls himself and quotes on jobs based on square footage of window surface. Sunshine hires college students to drive the company vans to jobs and wash the windows. A part-time bookkeeper takes care of billing customers and other office tasks. Overhead is accumulated in two cost pools, one for travel to jobs, allocated based on miles driven, and one for window washing, allocated based on direct labor-hours (DLH). Sam Davis estimates that his window washers will work a total of 2,000 jobs during the year Each job averages 2,000 square feet of window surface and requires 5 direct labor-hours and 12.5 miles of travel. Davis pays his window washers $ 12 per hour. Taxes and benefits equal 20% of wages. Wages, taxes, and benefits are considered direct labor costs. The following table presents the budgeted overhead costs for the Travel and Window Washing cost pools:
Required 1. Prepare a direct labor budget in both hours and dollars. Calculate the direct labor rate. 2. Calculate the budgeted overhead allocation rates for travel and window washing based on the budgeted quantity of the cost drivers. 3. Calculate the budgeted total cost of all jobs for the year and the budgeted cost of an average 2,000-square-foot window-washing job. 4. Prepare a revenues budget for the year, assuming that Sunshine charges customers $ 0.10 per square foot. 5. Calculate the budgeted operating income. 6. Davis believes that spending $ 15,000 in additional advertising will lead to a 20% increase in the number of jobs. Recalculate the budgeted revenue and operating income assuming this change is made. Calculate expenses by multiplying the existing budgeted cost per job calculated in requirement 3 by the number of jobs and adding the $ 15,000 advertising cost. Based on the change in budgeted operating income, would you recommend the investment? 7. Do you see any flaw in this analysis? How could the analysis be improved? Should SWW spend $ 15,000 in additional advertising? 8. What is SWW’s profitability if sales should decline to 1,800 jobs annually? What actions can Davis take to improveprofitability?