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Rensing Milo

Price: $1.99

Rensing Groomers is in the dog-grooming business. Its operating costs are
described by the following formulas:

Grooming supplies (variable)  y = $0 +  $5x 
Direct labor (variable)  y = $0 + $14x 
Overhead (mixed)  y =  $10,000 + $1x 

Milo, the owner, has determined that direct labor is the cost driver for all three categories
of costs.

(a) Prepare a flexible budget for activity levels of 550, 600, and 700 direct labor hours.
(b) Calculate the total cost per direct labor hour at each of the activity levels specified in
part (a).
(c) The groomers at Rensing normally work a total of 650 direct labor hours during each
month. Each grooming job normally takes a groomer 1.3 hours. Milo wants to earn a
profit equal to 40% of the costs incurred. Determine what he should charge each pet
owner for grooming.

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