A company operates a number of hairdressing establishments which are managed on a franchise arrangement. The franchisor offers support using a PC package which deals with profit budgeting and control information.
Budget extracts of one franchisee for November are shown below, analyzed by male and female clients. For the purposes of budget projections average revenue rates are used. At the month end these are compared with the average monthly rates actually achieved using variance analysis. Sales price, sales quantity, sales mix and cost variances are routinely produced in order to compare the budget and actual results.
Staff working in this business are paid on a commission basis in order to act as an incentive to attract and retain clients. The labour rate variance is based on the commission payments, any basic pay is part of the monthly fixed cost.

(a) Reconcile the budgeted and actual profit for November by calculating appropriate price, quantity, mix and cost variances, presenting the information in good form. You should adopt a contribution style, with mix variances based on units (i.e. clients).
(b) Write a short memorandum to the manager of the business commenting on the result in (a) above.

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Male 4000 7.5 Female Clients 1000 Average revenue (per client Average commission (per client) Total monthly fixed cost 18.0 10.0 3.0 £20000 Actual results Male 2000 8.0 Female Clients 2000 Average revenue (per client Average commission (per client) Total monthly fixed cost 20.0 11.0 3.5 $24 000