The Squeaky Horn Harvard Case Solution & Analysis

Question 1

Conceptually, what specific factors are likely to explain the difference between planned and actual results for the Squeaky Horn?

            There are a number of factors which explain the difference between the planned and his actual profit of Squeaky Horn. One of the reasons due to which the actual revenues are higher as compared to the planned revenues is that the management of the company has surpassed its planned revenue by lowering the hourly charges. This had only been achieved by the management by spending around 50% more time on minor repairs and exceeding by 15% on the planned band major repairs.

            The management had lowered the minor repair costs by $5 per hour but the company had spent much longer time in actual repairs and increased the overall revenue. The actual hours per job had also increased which could be explained by the time spent training and the employee turnover. Although the management did not succeed in managing their planned jobs related to the minor repairs, but they lowered the prices and became successful to beat the planned revenues.

            Other reasons are that the three salaried employees of the company performed efficiently as the actual hours per job were 0.4 hours less as compared to planned hours. On the other hand, lowering the minor orchestra repairs caused a deficit in planned revenues by $ 31,200. Lastly, the external factors contributing to the difference in planned and actual profit included were the increases in the shipping expenses and costs for replacement parts that were used in major repairs by $8076 and $ 11500 respectively. The differences between revised and actual in dollar terms could be seen in the table below:

REVISED VS ACTUAL

 REVISEDACTUALDIFFERENCE
Revenue

677550

664,170

13,380

Owner Salaries - Base

180000

180,000

0

Owner Salaries - Bonus

33877.5

33,209

669

Band Repairers Wages

69600

104,400

-34,800

Orchestral Repairers Salaries

114000

121,200

-7,200

Rush Job Wages

4125

3,850

275

Replacement Parts

82450

92,050

-9,600

Delivery

46252.5

53,961

-7,709

Contribution

147245

75,500

71,745

Advertising

12000

12,500

-500

Depreciation

3600

3,600

0

Office Rent

48000

48,000

0

Miscellaneous

4500

4,400

100

Profit

79145

7,000

72,145

 Question 2

Prepare a revised budget with all prior planning assumptions retained, but use the total actual number of jobs the Squeaky Horn worked on (i.e., 4,405).

            The revised budget has been prepared for the Squeaky Horn based upon all the stated assumptions by the management at the start of the year. In order to create a revised budget the revenues coming from the rush jobs, major repair jobs and the minor repair jobs have been separated. All the planned bill rates have been used and the actual number of the hours worked and jobs performed have been used to generate a revised budget.The total revenue equals to $ 677550 and the total expenses excluding the fixed charges are $ 530305. The revised budget shows a profit of around $ 79145 for the year. The revised budget is as follows:

REVISED BUDGET

$

REVENUES
Band major repairs

180000

Orchestral major repairs

153000

Band minor repairs

121800

Orchestral minor repairs

214500

Rush Jobs

8250

Total Revenue

677550

EXPENSES
Base Salaries

180000

Commissions

33878

Band Repair wages

69600

Orchestral repair wages

114000

Rush job wages

4125

Replacement Parts

82450

Delivery

46252.5

Total Expenses

530305

CONTRIBUTION

147245

Advertising

12,000

Depreciation

3,600

Office Rent

48,000

Miscellaneous

4,500

PROFIT

79,145

 Question 3

Prepare a profit reconciliation of planned versus actual profit by quantifying in dollar terms, all significant contributing factors.

The Squeaky Horn Case Solution

            The planned profit for the year was estimated to be around $ 57745; however, the actual profit for the year was $7000. It was around $50745 lower than the expected profit for the company.This is a huge difference and there are ranges of contributing factors that have contributed to this difference in profits. The Squeaky Horn is a private business and it is facing all the challenges that are faced by private businesses in such a market.

            In order to outperform the competitors, the management of the company had lowered the repair charges to increase the revenues. The management of the company had managed to accomplish this by exceeding the planned major band repairs by 15% and by spending more time of about on the minor repairs which is 50% as previously stated. Along with this, taking into account all the differences as highlighted in the first question, a huge gap had been seen between the planned and the actual profit. The profit reconciliation of planned with actual is shown below:.........................

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