Investor's Report

7-1 Final Project Submission: Presentation to Investors

By Jamie Smith

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P wtastic Dog Grooming and Boarding

Pawtastic Dog Grooming and Boarding offers professional services to dogs of all sizes, weights, and breeds. We promise to care for and treat your fur-baby with great care.

Reference: Images found through google search

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Company Profile

➢ Pawtastic Dog Grooming and Boarding is a pet-services business offering dog grooming, day care, and boarding in Texas.

➢ Our vision is to provide the utmost care to both the client and their pets by offering the highest quality of pet care, grooming services, and pet care.

➢ Our mission is to provide affordable professional dog grooming and boarding services by making the experience to be fun and relaxing for you and your pet. We promise Pawtastic treatment.

As the owner of Pawtastic Dog Grooming and Boarding, it is our wish to ensure all

pet needs are professionally cared for. We at Pawtastic Dog Grooming and Boarding

hire the most qualified and experienced staff who will dedicate their time and energy

in providing a safe and relaxing environment. With the vision and mission in mind, we

will be providing dog grooming, day care, and boarding services for all dog breeds.

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Purpose

➢ Information provided includes:

▪ Contribution Margin Analysis

▪ Break Even Analysis

▪ Cost of Services (COS) Schedule

▪ Income Statement

▪ Variances

I will share information concerning the contribution margin analysis, break even

analysis, and the profitable gains in the foreseeable future. In addition, sales cost will

also be discussed in comparison to the cost of services rendered to highlight the

amount of profit the company will achieve.

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Methods

➢ Sustainability

▪ AICPA Code of Ethics

▪ Integrity

▪ The Public Interest

▪ Responsibilities

Pawtastic Dog Grooming and Boarding operates by following the American Institute of Certified Public Accountants (AICPA) Code of Ethics and by-laws, as well as, other acceptable accounting standards. This includes but is not limited to operating with integrity, using good judgments that will serve the public interest and honor their trust, as well as exercising objectivity and independence in all activities.

All financial statements included in this presentation were prepared according to generally accepted accounting principles (GAAP) standards and contains accurate and relevant information. By using this information and operating ethically, Pawtastic Dog Grooming and Boarding will be able to achieve it goals and mission. Twice a year the employees attend professional training to ensure they are familiar with the newest grooming technology and techniques as well as how to care for the dog entrusted to our care.

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Financial Strategy

Consultation

Analysis

Solutions

Monitor and Review

To ensure we meet our vision and mission our products and procedures will be monitored and review on a daily basis, seeking consultation and/or changes as needed. The owner and employees will consult with each customer to learn their preferences and create a trustworthy relationship. We will review our products regularly seeking the highest quality of products while still maintaining an affordable price. When a situation happens we will seek agreeable solutions.

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Costing Systems

➢ Job Order Costing

▪ Cost for each manufactured/services quantity of product

➢ Process Based Costing

▪ Cost for each manufacturing department or process

➢ Activity Based Costing (ABC)

▪ Allocating factory overhead that uses multiple factory overhead rates based on different activities

Pawtastic Dog Grooming and Boarding utilizes the job order costing since it will provide three different services in its facility. Services provided include boarding, day care, and grooming, with each client having the option to use only one service or a combination of services per visit. This will give us the option to view each dog as a unique job to accumulate and report costs based on each dog. By using the job order costing method, clients will be billed as soon as services are rendered and services are only recorded upon completion. This method will also allow us to bill clients on a weekly, monthly, or quarterly basis which will allow us to secure deferred revenues or advance payment.

The process based costing system would not efficiently record and accumulate costs for the company as it is used to record information based on nearly identical services. The services provided by Pawtastic Dog Grooming and Boarding vary significantly from each other. Cost would then be determined on each individual service and not on individual dogs. It would be difficult to track the cost of each dog in order to accurately estimate the cost of each services provided by the company.

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Costing Systems

➢ Activity Based Costing (ABC)

▪ Allocating factory overhead that uses multiple factory overhead rates based on different activities

The Activity Based Costing (ABC) method identifies and assigns costs to overhead activities and then assigns those costs to products. This would not be an effective costing method for Pawtastic Dog Grooming and Boarding. The ABC method is based on the concept that only a few of the inventory items in a facility are used on a regular basis, with the remaining items being accessed at much longer intervals. It looks at the whole cost of a single service in comparison to looking at one aspect of the service.

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Selling Prices

➢ Cost Behavior

➢ Variable Costs

➢ Fixed Costs

➢ Mixed Costs

There are a few different factors we can consider to determine our prices. Cost behavior is the way a specific cost reacts to changes in activity levels. Cost may stay the same or may change in response to a change in activity. Variable costs are costs of labor or materials that change with sales. The amount of materials uses and labor required is dependent upon the number of dogs being services, variable costs will change. Fixed costs are cost that stay the same and are not dependent on the number of services performed. Mixed cost contain components of both variable and fixed cost behaviors.

Pawtastic Dog Grooming and Boarding will be utilizing the fixed cost behavior to accurately estimate its fixed monthly cost needed to operate each service. This will also assist in estimating the amount needed to charge for each service.

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Selling Prices

➢ Variable Costs

▪ Grooming $9.97

▪ Day Care $4.65

▪ Boarding $7.35

➢ Fixed Costs

▪ Grooming $2,367.91

▪ Day Care $858.44

▪ Boarding $1,378.97

➢ Services

▪ Grooming: $25 per dog, 5 dogs daily for 30 days

▪ Day Care: $18 per dog, 22 dogs daily for 30 days

▪ Boarding: $25 per dog, 12 dogs daily for 30 days

The variable cost for grooming is $9.97 and the fixed cost is $2,367.91. There will be 5 grooms per day at $25 per dog, the total amount earned from grooming per month (assuming 30 days a month) would be $3,750. After deducting variable costs and fixed cost totals, the company will have a total profit of $1,372.12 per month in grooming.

The day care services revenue will be $11,880 (18 dogs x 22 daily x 30 days) and the foreseeable profits in this service would be $11,016.91 ($11,880 revenue - $4.65 variable cost - $858.44 fixed cost).

The revenue for the boarding services would be $9,000 (25 dogs x 12 daily x 30 days) and the foreseeable profits in this service would be $7,613.68 ($9.000 revenue - $7.35 variable cost - $1,378.97 fixed cost).

The estimated monthly profits for Pawtastic Dog Grooming and Boarding is $20,002.71.

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Target Profits

Services Target Profit 1 Target Profit 2

Grooming $1,000.00 $1,500.00

Day Care $417.00 $667.00

Boarding $583.00 $909.00

The minimum target profits as highlighted above were chosen based on analyzing the effects of changes in selling prices on profits and the effects of changes in costs on profits. The target profit also helps us to estimate the sales needed to acquire the required targeted profits.

For an example, if the current cost for grooming services is $25 per dog and 5 dogs per day, the company will have to decide when to increase selling prices and/or the number of dogs to achieve the second targeted profits.

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Contribution Margin

Grooming Day Care Boarding

Sales price $25.00 $18.00 $25.00

Variable Cost per unit $9.97 $4.65 $7.35

Contribution Margin $15.03 $13.35 $17.65

➢ The excess of sales over variable costs

➢ Provides insight into the profit potential of the company

The contribution margin is a product’s price minus all associated variable costs. By calculating the contribution margin, owners are able to compute the breakeven and target income sales, which can be used to decide how to price the services rendered. The contribution margin highlighted in the table above can also measure how growth in sales can translate to growth in profits. Once the fixed costs are covered, any additional contribution margin increases income from services.

The grooming services has a contribution margin of $15.03, the day care services is $13.35, and the boarding service is $17.65. This is the total revenue earned on a daily basis within each service minus any variable cost it may have. The additional costs the company will incur is from its fixed costs.

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Financial Statement – COS

The company started operations this year, making a $5,000 purchase to ensure there were sufficient materials to begin services. Materials were purchased in large qualities, leaving an ending balance for materials of $3,000 which can be used in future months. The total overhead and COS for the initial month is estimated to be 11,040. The COS statement above also is the starting point that will be used to estimate the amount of services that needs to be rendered to earn money back plus additional amount for a profit.

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Income Statement

From the income statement above, we can expect a monthly revenue of $17,512. We’ve already calculated the COS and estimated it to be $11,040 and expenses totaling $3,173. We can estimate a monthly net income of $3,299. This is the total amount of money the company will have remaining after paying out all expenses, and contributing to the cost of goods sold.

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Variance Analysis

A favorable cost variance occurs when the actual cost is less than the standard cost. An unfavorable cost variance occurs when the actual cost exceeds the standard cost. The price variance identifies if the company paid too much for each service. The quantity variance identifies if the company used too much material or hours to complete services. Since the groomer direct labor time variance is unfavorable, we will need to work towards cutting labor which could mean hiring less people and cutting hours. However, the groomer labor rate variance is favorable which means that the rate of pay selected is good but the company will have to reduce hours taken to complete task.

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Addendum

Cost Classification

References: AICPA Professional Code of Conduct. (n.d.). Retrieved from https://pub.aicpa.org/codeofconduct/Ethics.aspx Managerial Accounting 14th Edition Retrieved from https://ng.cengage.com/static/nb/ui/evo/index.html?snapshotId=462822&id=16255 0367&eISBN=9781337270786

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Addendum

Contribution Margin

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Addendum

Break Even Analysis

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