ACC 202 7-1 Presentation to Investors w Notes PDF

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Ladies and Gentlemen, thank you for attending this meeting. I am here to discuss the vision I have for my company, Ma & Paws Grooming and Kennel. With your assistance this company can be the premiere pet service business in the area. As you will see as we move through this presentation the costing system employed is the most accurate system to account for each dollar expended and earned. With the activity-based costing method used costs per service being offered are meticulously tracked and set up in such a way to generate the most profit.

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The way our company went about sourcing and pricing our products align with our mission was simple. We sourced the best products at the lowest cost available. This will keep our costs down but provide a quality service to our customers. When customers pick up the pets from our shop and see how amazing their pets look by using the best products available and at affordable price we expect to have their return business.

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We ensure that our company’s accounting firm maintains a membership to the American Institute of Certified Public Accountants. What is AICPA? AICPA represents the CPA profession nationally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the profession’s technical and ethical standards.

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Cost-volume-profit analysis is the examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits. A break-even analysis was conducted to determine the minimal amount of sales we would need to accomplished to equal our expenses so we don’t operate at a loss. Depending on the sales price for the services we provide will determine our break-even point. For example, our daycare price of $20 per day we will need to have a minimum of 56 animals per month to cover our expenses. For our boarding services we will need to have a minimum of 79 animals at a cost of $25 per animal to cover expenses and our grooming service price of $30 per animal we will need to provide service to 119 to cover those expenses. The goal of a business is to make a profit so we conducted a series or calculations to determine the sales volume for different profit targets. For example, to make a profit of $417 per month we would have to provide day care services to approximately 84 dogs per month. Our market research indicated that we should have a sales volume of 360 in day care per month. To make a profit of $583 the boarding service sales volume would need to be 112 per month and our market research indicated that our volume could be 360 per month. Lastly, our grooming service would need to provide services of 169 animals per month to turn a profit of $1,000 per month. Our market

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research indicated that we should be able to groom 120 animals per month which barely breaks even so we will need to evaluate our processes and cost drivers to generate more revenue for this service.

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In our business model we choose to use the job order costing system versus the process cost system. The most significant difference between the two costing methods is how overhead rates are applied to products or services. Additionally, job order costing is a more accurate method because it takes more cost factors into consideration before determining the cost of service. Whereas, product costing applies an average overhead rate across the board and does not taking into account costs, such as administrative or managerial costs. We did this because of the three different services provided to our customers. Each service has unique costs associated with them and they vary differently. An example of these differences are the labor rates for our Day Care Attendant and Kennel Attendant as they are based on need or there hours are flexible, whereas our Groomer is a fixed cost at 40 hour work week. If the process cost system were used for the entire business our prices would averaged across each service and would be inflated and we could possibly price our business out of the market which could reduce our profits or put us out of business all together.

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The prices structure that we choose to use is based on market research conducted for similar services in the local area. To stay in line with our mission statement to provide affordable quality grooming and boarding care to animals while ensuring their human parents experience positive results. It was determined to use the prices points selected for our offered services. Dog Day Care: There were three price points identified in our market research for dog day care and there were $18, $20, and $25 per dog per day. The price point of $20 per day/per dog was chosen based on the market research that we can expect to have 15 clients per day. Our current space of 12 kennels can each hold a single dog. With the available space at any given time three dogs would not be in a kennel and this would allow the kennel attendant to exercise three dogs at a time which would be a manageable task to complete. Based on our cost-volume-profit analysis the $20 price point is more in line with our current capabilities than the other two prices. If we were to use the $18 price point our research revealed that would could expect 22 dogs per day and our current available space would leave 10 dogs not in a kennel at any given time and our kennel attendant would get overwhelmed. Conversely, if the $25 price point were used then we would not be maximizing the use of our available space as our research suggests we would have 10 dogs per day, leaving two of our

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kennels empty everyday. Overnight Boarding: There were three price points identified in our market research for overnight boarding and they were $25, $28, and $30 per dog per day. The price point of $25 per day/per dog was chosen based on the market research that we can expect to have 12 clients per day. There are 12 kennels that we can place the dogs at night so they can be safe and secure. Based on the cost-volume-profit analysis this price point has the most profit potential. Our research indicated if our price were higher we would have less clients and therefore lose potential profit. For example, at the $25 price the expected 12 dogs a day would generate a $300 per day revenue, conversely, if we were to charge $28 or $30 per dog the revenue would be $280 and $210 per day respectively, based on the market research completed and the number of dogs expected at those to higher price points. Additionally, the higher price points would leave unused space that we would not be covering those costs due to the missing revenue. Grooming: There were three price points identified in our market research for grooming and they were $25, $30, and $35 per grooming service. The price point of $30 per grooming service was chosen based on the market research that we can expect to complete 4 grooms per day. At this price point we would need to have a minimum of 119 grooming sessions per month. Our cost-volume-profit analysis indicates that if we were to charge $25 a groom we would need to have a minimum of 158 grooms to break even and this volume is not possible because the groomer works a 40 hour week and each groom takes 1.5 hours to complete. Lastly, the $35 price point we could expect to have 3 grooms per day or 60 per month based on the market research. The cost-volume-profit analysis shows that if the $35 sell price is used we would need to sell a minimum of 94.60 grooms which is 34.60 more than what is indicated in the market research.

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The target profits show that in order to reach a selected profit amount the number of sales for each service will need to be reached. The cost-volume-profit analysis indicated to achieve a day care profit of $417 the company would need to sell 83.09 units per month. This target is sustainable because our market research indicated that at the $20 price point we can expect to sell 15 units per day and the day care operation is open 6 days a week, therefore we would expect to sell 90 units per week. Additionally, the target profit of $667 is also sustainable based on the same information that with 15 dogs per day we expect to sell 90 units per week. The cost-volume-profit analysis indicated to achieve a boarding profit of $583 the company would need to sell 111.16 units per month. This target is sustainable because our market research indicated that at the $25 price point we can expect to sell 12 units per day and the boarding service is 7 days a week, therefore we would expect to sell 84 units per week which 27.16 units shy to reach the target profit. Additionally, the target profit of $909 needs to sell 129.63 units and is also sustainable based on the same information that with 12 dogs per day we expect to sell 84 units per week.

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The cost-volume-profit analysis indicated to achieve a grooming service profit of $1,000 the company would need to sell 1689.14 units per month. This target is sustainable because our market research indicated that at the $25 price point we can expect to sell 12 units per day and the boarding service is 7 days a week, therefore we would expect to sell 84 units per week which 27.16 units shy to reach the target profit. Additionally, the target profit of $909 needs to sell 129.63 units and is also sustainable based on the same information that with 12 dogs per day we expect to sell 84 units per week. To make this service more profitable changes will need to be made is some of the variable/fixed costs to increase the contribution margin. To change our variable costs we can look at a different pair of clippers. The current clippers we use cost $136.99 and can be used for 100 grooms. Any new clippers used we would need to evaluate to see if the performance can be matched with the current clippers. Additionally, we can review the type of shampoo being used either finding a more less expensive shampoo but maintain our level of quality in line with our mission or purchase bulk quantity to achieve discounts. We can also review our costs for the cleaning products used to clean and sanitize our facility going along with the same mindset as the shampoo. Another possibility is to reallocate those expenses to the other two services offered that indicate more profitability.

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The contribution margin is the cornerstone of our break-even analysis. The contribution margin is calculated as the selling price per unit, minus the variable cost per unit. Additionally, it shows the potential profit for products offered after all expenses or fixed costs are covered. For example, the contribution margin for grooming is $20.03 per unit. What this remaining $20.03 means is that what revenue is remaining after covering the fixed costs is profit. What this comes down to is the higher contribution margin the more profit earned.

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In the cost-volume-profit analysis we presented break-even and target profits per service offered. For the Day Care we presented a break-even of 55.92 units, for a target profit of $417 and $667 we indicated sales would need to be 83.09/99.38 respectively. Our first month’s performance revealed that our market research was accurate. We predicted that we would have 15 dogs per day at our $20 price point which calculates to 15 dogs x 24 days=360 dogs per month. Our Jan sales of $7,200/$20 per unit equals the 360 units in sales. Which far exceeds our target profit goals. For the Boarding we presented a break-even of 66.78 units, for a target profit of $583 and $909 we indicated sales would need to be 95.01/110.80 respectively. Our first month’s performance revealed that our market research was accurate. We predicted that we would have 12 dogs per day at our $28 price point which calculates to 12 dogs x 30 days=360 dogs per month. Our Jan sales of $9,000/$28 per unit equals 321.42 units in sales. This too far exceeded our target profit goals. For the Grooming we presented a break-even of 118.22 units, for a target profit of $1,000 and $1,500 we indicated sales would need to be 168.01/193.11 respectively.

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Our first month’s performance sold 90 units why is short by 30 units to break even. We will need to evaluate all aspects of this service from fixed/variable cost angle. The process of grooming could be adjusted by adding another employee that would shampoo and dry the clients thereby freeing up the groomer’s time to groom more animals. However, adding an additional employee will increase our fixed costs that would need to be covered by the contribution margin minus the variable costs.

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After our first month in business we did really well overall as a company. As you can see two of the three services offered generated enough revenue to cover the shortfall in our grooming area. When completing the cost-volume-profit analysis we underestimated our projecting for the Day Care and Boarding services. At the highest target profit estimates for each service we calculated a total profit $3,076, however, our total profit earned was $4,687 or $1,611 higher than projected. The break-down of each service is as follows: Grooming: Our initial projections of performance indicated that at the price point of $30 per unit we expected to sell 120 units, which is just above the break-even amount. This past month we sold 30 units under our projected numbers. If we would have sold our projected number of units to at least break even the company would have earn an additional $900 in profit. We will need to evaluate the process used to provide this service because it doesn’t make sense to operate at a loss even though the other two services we able to cover the loss. Day Care: The cost-volume-profit analysis indicated to achieve a day care profit of $417 the company would need to sell 83.09 units per month. This target is

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sustainable because our market research indicated that at the $20 price point we can expect to sell 15 units per day and the day care operation is open 6 days a week, therefore we would expect to sell 90 units per week. Additionally, the target profit of $667 is also sustainable based on the same information that with 15 dogs per day we expect to sell 90 units per week. The actual performance achieved for this service exceeded our projections Boarding: The cost-volume-profit analysis indicated to achieve a boarding profit of $583 the company would need to sell 111.16 units per month. This target is sustainable because our market research indicated that at the $25 price point we can expect to sell 12 units per day and the boarding service is 7 days a week, therefore we would expect to sell 84 units per week which 27.16 units shy to reach the target profit. Additionally, the target profit of $909 needs to sell 129.63 units and is also sustainable based on the same information that with 12 dogs per day we expect to sell 84 units per week. The actual performance achieved for this service exceeded our projections

Possible changes to be made: Grooming: . To make this service more profitable changes will need to be made is some of the variable/fixed costs to increase the contribution margin. To change our variable costs we can look at a different pair of clippers. The current clippers we use cost $136.99 and can be used for 100 grooms. Any new clippers used we would need to evaluate to see if the performance can be matched with the current clippers. . The process of grooming could be adjusted by adding another employee that would shampoo and dry the clients thereby freeing up the groomer’s time to groom more animals. However, adding an additional employee will increase our fixed costs that would need to be covered by the contribution margin minus the variable costs. Additionally, we can review the type of shampoo being used either finding a more less expensive shampoo but maintain our level of quality in line with our mission or purchase bulk quantity to achieve discounts. We can also review our costs for the cleaning products used to clean and sanitize our facility going along with the same mindset as the shampoo. Another possibility is to reallocate those expenses to the other two services offered that indicate more profitability.

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Let’s discuss the variances for the grooming service. A variance is the difference between an actual amount, in this case, labor and materials and the projected amounts anticipated being used. The groomer’s direct labor time variance was based on the standard amount of 150 hours, however, the actual labor hours utilized was 180. This has an unfavorable result $360 due to the fact that it took 30 hours more than what is standard for a grooming procedure. This could also indicate that the groomer hired is less skilled than the labor rate being paid. The groomer’s direct labor rate variance was based on actual rate of $11.50 per hour minus the standard rate of $12, however since the process took 75% longer than projected this reduced the actual labor rate to $11.50 per hour. The resulted in a favorable variance of $90 and could possibly be attributed to inaccurate estimate of how long it would take to complete the grooming procedure. The grooming service direct materials quantity revealed a result of an unfavorable $400 cost. There could be several reasons why this occurred. The original projection of 1000 per groom was miscalculated as the actual amount was 1200 ounces per

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groom at a cost of $1 more per grooming session. This most likely was caused by wasteful usage as the cost of materials was unfavorable as well. The grooming service direct materials price revealed an unfavorable $1200 cost. A few reasons could have affected materials pricing. There could have been a price hike in materials used or when purchasing the materials we didn’t purchase enough quantity to earn a discount. Variances occur for several reasons. For instance we projected a grooming procedure taking 1.5 hours. If a client comes in that is severely dirty or has matted hair the process can take extra time to complete the process. Our mission again is “Provide affordable quality grooming and boarding care to animals while ensuring their human parents experience positive results”. If our groomer didn’t spend the time caring for the animal and cleaning in properly then our mission would not be met.

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