Case Study: Budget Preparation and Variance Analysis for Sparkling Clean Services

In this assignment, you are provided with a case which includes data relating to static budget, flexible budget, and variance analysis. You will transcribe the data from the case and create: 

• Static budget
• Actual budget
• Flexible budget
• Static budget variance
• Flexible budget variance
• Variance analysis

You will also write a memo regarding possible unethical practices during budget preparation.

This is an individual assignment worth 20% of your final grade.

Sparkling Clean Services (SCS) is a local business in the Tri-cities area. It provides cleaning services to residential households and commercial establishments. Both households and businesses sign contracts with SCS. As the contractor, SCS dispatches its crew to the locations. The crew performs the cleaning as per the contracts and reports back to the company main desk. The main desk then prepares the invoice and sends them to the clients. Clients have one day to pay the invoice. Sales volume can vary from one quarter to the next.

In terms of expenses, the main expense for SCS relates to labour. They pay crew members competitive wages and benefits. The wage rate is calculated on an hourly basis and is fixed for the entire year. The next expense item is cleaning supplies. SCS accounts for cleaning supplies relative to the hours worked.

For example, they estimate that cleaning supplies are consumed at a rate of 0.2 litres per labour hour. This is a good measure because the longer it takes for a site to be cleaned, the more the consumption of cleaning supplies. Cleaning supplies are procured from a prominent vendor and the cost is fixed for the entire year.

Sometimes clients are not happy about the cleaning services and register a complaint. In that case, the crew is dispatched again for a second cleaning. The hours accruing from such scenarios are not billed to the clean as this constitutes a ‘service recovery’. However, the crew is paid for such hours. SCS maintains a record of these hours and classifies them as ‘unproductive hours’, or ‘unbilled hours. This is calculated as a percentage of revenue earning hours (e.g., 10% of revenue generating hours). For the purpose of this assignment, assume that there is no consumption of cleaning materials when this second cleaning is being done.

The revenue is calculated as number of hours that the crew works on a site, multiplied by the contracted rate with the client. The hours worked in the residential and commercial segments are shown separately, and there is a total for the combined hours worked. The revenue for each segment is arrived at by multiplying the hours for the segment by the rate. The budget is prepared for four quarters, one to four.