I want solution of this case study with calculations.
3 WILDWOOD CREATIONS Ltd1
Sam Dekkan, a part owner of the WILDWOOD CREATIONS Ltd, a maker, repairer and
restorer of wooden outdoor entertainment furniture, was responsible for setting the charges
for various kinds of repairs.
A potential customer had called to inquire about the cost to repair an outdoor set of
chairs. Dekkan gave an estimated price for the job, after which the woman thanked him and
let him know that she would be going elsewhere - a competitor.
Dekkan was aware that competition was increasing not only from the repair market but from
the manufacturer of outdoor furniture with their low prices for new furniture. To attract repair
jobs and avoid layoffs, Dekkan and his partners had lowered prices for minor repairs for the
first time in a decade. Dekkan had once again looked at the budgeted and the actual
Operating Profit statement. How could he tell what portion of the company?s profits were due
to the price decreases and how much was related to other factors?
WILDWOOD CREATIONS Ltd is a small shop-factory that specialises in repairing,
restoring and making (a standard design) outdoor table and small entertainment furniture.
Currently, WILDWOOD CREATIONS offers four main services: major repairs, minor repairs, making a variety of new outdoor furniture: tables, bench seats, chairs, outdoor coffee
tables, small storage cabinets. It uses its standard designs and can also adapt those
designs for customer preferences (size, colour, height, material variations); restoring used outdoor furniture brought in by customers (however, not restoring
Historically, minor furniture repair jobs were billed at a rate of $65.00 an hour.
The minor repairs of furniture pieces was carried out by the four full-time salaried
In addition, Rush-jobs for minor repairs were occasionally performed for local customers
only. These jobs were sub-contracted to a group of people who were retired employees of
the WILDWOOD CREATIONS. They carried out the repairs for $27 an hour. Rush jobs were
charged under flat-fee arrangements that averaged $160 per job. Usually, the average time
that a Rush-job took was three hours to complete.
Major repairs and restorations were performed under individual flat-fee2 agreements that
were quoted to customers based on the type of work needed for each piece of furniture.
The three owners of WILDWOOD CREATIONS?s as well as their four employees carried out
all the major Repair Jobs as well as making new furniture in the shop-factory facilities. 1 © Dr. W. Motyka 2016. All rights reserved.
Flat-fee: means a fee amount that does not change no matter how much the cost of the item eventually
turns out to be.
2 4 THE ANNUAL OPERATING COSTS
Before the start of the current year under review (July 2015 to June 2016), Dekkan?s
accountant had prepared the annual operating plan for the business [SCHEDULE 1] in the
APPENDIX. WILDWOOD CREATIONS? business was small and relatively straightforward,
which made it possible to develop the company?s operating budget using specific volume
and revenue data for each product-service area.
The following information was used in preparing the annual plan (Master Budget) for July
2015 ? June 2016:
1. Based on earlier year?s work orders (2014-2015), the business was expected to carry
out the following number of jobs in the July 2015 ? June 1016 year:
a. 390 major repairs Jobs; 1,830 minor repairs Jobs; 540 restoration Jobs; also,
the company expected to receive an order to make and sell 520 standard new
In addition, it expected to take on 50 rush repair jobs.
b. The major repairs Jobs were to be charged an average price of $450 per Job.
Major repair Jobs were expected to take an average seven hours to complete.
c. The repair jobs that were in fact restoration jobs work were to be quoted at a
price of $320 per job;
d. The fee for Minor repairs is based on hours worked and is $65 per hour. The
minor repair Job work was expected to take an average of two hours to
e. The sale price of standard new outdoor tables was expected to average $680
per table. 2. All three partners were to be paid an annual base salary of $60,000 plus bonuses of
5% based on the total sales revenue of the company for year July 2015 to June 2016.
3. The hourly wage rate for (wages) employees was to be $28 an hour for work done.
4. The four salaried employees are paid an annual base salary of $43,000.
5. Replacement parts and other supplies were budgeted at $120 for each major job and
$47 for each minor job (including Rush jobs). This estimated cost was based on
experience. The making of new tables requires various materials that combined
represent an expected cost of $140 per table.
6. Approximately 35% of the furniture repair Jobs that WILDWOOD CREATIONS
worked on were transported to the shop-factory from outside of the city. The
company expected to incur average transportation charges of $38 per package to
transport the repaired furniture pieces back to their owners after the work was
7. The budgeted advertising, depreciation, office rent, and miscellaneous expenses
were treated as fixed expenses. 5 ACTUAL RESULTS FOR THE YEAR
At the end of the year (June 2016), Dekkan?s accountant prepared the actual
Operating Profit statement shown in the last column of SCHEDULE 1. Although Dekkan
knew that WILDWOOD CREATIONS had experienced significant changes during the past
year, he was still shocked to discover that the company?s profit was $2,917 less than the
budget for that year even though revenues had increased by $55,390. In order to understand
fully the decrease in profits, Dekkan gathered the following information:
1. Owing to increased competition, major repairs were billed at $440 per job, while
minor repairs jobs were billed at a fee of $60 per hour.
2. The planned and the actual number of Jobs as well as the average hours per job
are presented in SCHEDULE 2 in the Appendix.
3. On average, major repairs and restorations required more replacement parts than
in past years. The replacement parts expenses for major repairs Jobs were $120
per job for the year, while for minor repair Jobs the cost was $47. The materials
for new tables was $140 per table.
4. The transportation-delivery expenses were $38 per package.
5. Advertising expenses were $2,000 more than budgeted owing to an unplanned
printing of flyers for the new standard design table that was now available.
6. Miscellaneous expenses, however, were $900 less than the budgeted amount. REQUIRED
Analyse the information about the activities and financial performance WILDWOOD
CREATIONS Ltd. Prepare an Executive Report of no more than 2 pages for the owners
of Wildwood Creations, setting out the overall outcomes and conclusions of your
analysis which addresses the following listed requirements and issues.
The two page report is to be in proper format, structure and style, and is to be
accompanied by relevant Appendices. The Appendices of relevant Schedules are to
be in a proper presentation format, and structured to show the relevant calculations
that support your analysis. There is no limit on the number of
schedules/tables/workings that the APPENDIX contains. However, these
schedules/tables and workings must be clearly formatted and understandable.
1. Prepare a schedule showing the differences between the planned outcome and
the actual results for WILDWOOD CREATIONS for the period July 2015 to June
2. Prepare a profit reconciliation of planned versus actual profit by quantifying, in
dollar terms, all significant factors.
3. Prepare a revised budget using all the previous planning assumptions, but use
the total actual number of jobs that WILDWOOD CREATIONS company worked
on during the year July 2015 to June 2016. In essence create a flexible budget
based on the actual number of jobs worked on. 6 4. Consider how the different compensation (salaries, wages) arrangement of the
company affect profit?
5. What changes should Dekkan and his partners consider making based on the
results of your analysis. 7 APPENDIX
WILDWOOD CREATIONS Ltd SCHEDULE 1 Schedule of Planned versus Actual Operating
Results Total Revenue
Owner Salaries - base
Owner Salaries - bonus
Major repairs: salaries
Minor Repairs: wages employees
Rush Jobs: wages
Materials for new tables
Miscellaneous Operating Profit for the year July 2015 to June 2016.
$84,900 $19,191 $16,274 SCHEDULE 2: BUDGET and ACTUAL VOLUMES and input standards
WILDWOOD CREATIONS: JOB Type Major repairs (salary) Data for July 2015 to June 2016
No. of Jobs
per Job 390.00 7.00 450.00 7.00 1,830.00 2.00 1,740.00 3.10 Restoration jobs (salary) 540.00 6.00 510.00 7.50 Making of new Furniture (salary) 520.00 14.00 540.00 13.00 50.00 3.00 55.00 2.80 Minor Repairs (wages employees) Rush-jobs (minor) repair outsourced 3,330.00 3,295.00
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