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4. Damian is a Hairdresser who runs a salon but does not work there on a regular basis as he has other businesses. For simplicity the services are categorised as either "Colour and Trim" or "Trim".

Staff are paid a salary (which is included in fixed costs) and commission which is the only variable cost. Damian has set up a budgetary system to monitor the variable revenue and costs of the Salon as follows:

Monthly Budget

	Colour and Trim	Trim
Monthly demand (services)	6,000	1,500
Average price per service	60	24
Average commission	3	1.25
Monthly fixed costs 120,000

Actual for April

	Colour and Trim	Trim
Monthly demand (services)	3,000	4,000
Average price per service	70	30
Average commission	3.50	1.50
Monthly fixed costs 130,000

Required

a) For the month of April

i) provide a monthly budget income statement and an income statement of actual performance.

ii) provide a statement of reconciliation between the monthly budget and the actual by calculating:

Price variances,

Quantity variances,

Mix and quantity variances based on the number of services,

Cost variances.

b) Explain to Damian the performance for the month as shown by your variance statement.

c) Based on the budgetary estimates, if each "Trim" takes 20 minutes and each "Colour and Trim" takes 40 minutes (this does not include the time taken for the colour to set as the stylist can do other work at that time), using the budget price and commission, explain which service is the more profitable. Also explore the amount of capacity the salon can use and is using. How would your explanation help Damian when managing, pricing and marketing the services of the salon?

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