8030 – PM Elective
Quah Studio - Briefing notes for ASSESSMENT OPPORTUNITIES
READ THE INTRODUCTION AND APPENDIX 1 FIRST, BEFORE READING THE REST OF THIS DOCUMENT. See
highlights for the text that lays out the AO’s!
Who are you? CPA, recently moved to this business
Who are you advising? Suzanne Quah, owner – not financially focused
What is (s)he asking you for? Why are results low, and what to do; whether to renovate a property.
How am I expected to reply? Memo format or similar. It needs to look like something you would be
prepared to give to your boss. Marks will be deducted if it would be hard for a non-accountant to follow.
AO1 – “Should I have revised the budget since our bookings were lower than expected?” – YES!
AO2 – Prepare a variance analysis on the financial results
AO3 – Suggestions on how to improve overall financial performance.
These AOs can be built on the same analysis – but make sure to comment on each of them. Three
stages:
- Flex the original budget to reflect the actual level of activity (and explain your variances)
- Compare the actual financial results against the flexed budget
- Comment on variances and suggest possible ways to fix them.
Recommend you use the following structure in your analysis:
Note that this lets you keep the key information front-and-centre. The detailed calculations (eg. of how
you flexed your budget) and the commentary can go in footnotes or another tab.
Line item
Original
udget
Flexed
udget
Flexed vs
original
gt Notes
Actual
esults
Var from
flexed
udget Notes
Revenue item 1 $x $y ($y-$x) note 1 $z ($z-y) note 2
Revenue item 2 $x $y ($y-$x) note 3 $z ($z-y) note 4
Total rev [total] [total] [total] [total] [total]
Cost item 1 $x $y ($y-$x) note 5 $z ($z-y) note 6
Cost item 2 $x $y ($y-$x) note 7 $z ($z-y) note 8
[total] [total] [total] [total] [total]
etc etc
8030 – PM Elective
Quah Studio - Briefing notes for ASSESSMENT OPPORTUNITIES
AO 4 – Consider how to organize the business
AO5 (implicit) – Consider how to evaluate the different departments
The case identifies three different core types of staff responsibility (photographers, production staff,
sales associates), plus the office manager (you can ignore). The case is guiding you to consider each of
these as a responsibility centre.
Responsibility centres can be revenue centres, cost centres or profit centres.
You will need to think about:
- what responsibilities each “department” will ca
y
- what sort of targets Suzanne might set, to evaluate each and hold them accountable
- any cu
ent issues you identify that may make it difficult for each department to achieve goals
AO6 – Evaluate whether or not to renovate the barn
There are many different ways to evaluate whether or not to proceed with an investment. The case is
guiding you to create a NPV calculation stretching out 5 years, and using a discount rate of 10%.
Using the information provided, create an expected cashflow statement for each year, and calculate a
total NPV.
Make a recommendation whether or not this is financially sensible. Don’t forget to comment on any
qualitative (non-financial) factors you think are relevant.
Allocation to groups:
- Week 1: AO 1, AO2, AO3
- Week 2: AO 4, AO5, AO6
CPA MOCK Evaluation PM Elective Module Page 1
© 2017, Densmore Consulting Services Inc. All Rights Reserved.
THE QUAH STUDIO Suggested Time (80 minutes)
Today is January 11, XXXXXXXXXXYou, CPA, just started working for The Quah Studio (TQS), a well-
known photography studio in the nation’s capital. The company was founded 10 years ago by
Suzanne Quah and has seen tremendous growth during that time. The main studio is located in
downtown Ottawa and there is another location used for outdoor sessions in the Gatineau Hills
area, about 30 minutes from the city. The rural setting is becoming popular with customers who
like to have their photos taken in a natural setting.
Suzanne has always focused on the studio side of the business. She likes to be behind the
camera much more than sitting behind a desk. “That’s where you, CPA, come in,” she
explained. “I need some help understanding the numbers.”
In the past year, TQS barely
oke even. “I thought things were going well, but the numbers
eally took me by surprise. Until I know what is going on, no one is going to get any salary
increases.” Suzanne provided you with the budget she put together last year (Appendix I). “I
wonder if I should have revised the budget since our bookings were lower than expected.”
Suzanne asked you to prepare a variance analysis on the financial results, providing specific
suggestions on how to improve the company’s overall financial performance.
“I would also like you to look at the way I have organized the business. I didn’t really put any
thought into it when we started. We have just added people when we saw the need. I was
talking to a friend last week and she was telling me that the company she works for is organized
into cost centres and revenue centres. Is that something TQS should consider?”
The Ottawa location is cu
ently operating close to capacity. It has two studios on the main
floor of the building, office space and a production facility downstairs. The two acres of land in
the Gatineau Hills area were purchased two years ago. TQS started using the Gatineau
location for outdoor photography last year. It is a wooded lot with an old barn and two small
sheds that serve as a convenient background for pictures.
To make the best use of that investment, Suzanne would like to fix up the barn and winterize it
so it can be used as a small indoor studio. The renovations would cost $150,000 but it would
give the company the ability to use the location all year. Before committing any money to the
project, Suzanne wants to be sure it is viable. She would like to recover the cost of the
enovations within five years.
“Do some investigation and we can get together next week so you can provide me with your
ecommendations.”
You gathered additional financial information (Appendix II) and met with other staff (Appendix
III) as part of your investigation.
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CPA MOCK Evaluation PM Elective Module Page 2
© 2017, Densmore Consulting Services Inc. All Rights Reserved.
APPENDIX I
2017 BUDGET FOR THE QUAH STUDIO
Revenue
XXXXXXXXXXStudio fees
Note
Ottawa
$260,000
1
Gatineau
130,000
2
Digital images and prints 585,000
3
XXXXXXXXXXTotal revenue
975,000
XXXXXXXXXXVariable costs
XXXXXXXXXXPhotography
195,000
4
Digital images and prints 351,000
5
XXXXXXXXXXTotal variable costs
546,000
XXXXXXXXXXContribution margin 429,000
XXXXXXXXXXOperating costs
300,000
XXXXXXXXXXExpected income before tax $129,000
Notes:
1. The Ottawa location expected 500 studio sessions at $400 each and 30 weddings at $2,000
each.
2. The Gatineau location was expected to
ing in 50% of the Ottawa location's revenue in its
first year.
3. Revenue from digital images and prints was budgeted at 150% of studio fee revenues.
4. Variable costs for a studio session total $200. Variable costs for a wedding session are
$1,000.
5. Production costs were expected to be 60% of the digital images and prints revenue.
CPA MOCK Evaluation PM Elective Module Page 3
© 2017, Densmore Consulting Services Inc. All Rights Reserved.
APPENDIX II
SELECTED FINANCIAL INFORMATION
• There were 480 studio sessions and 24 weddings at the Ottawa studio last year.
Seventeen customers complained about being assigned to other photographers (Anne
Hawley and Jon Lafferty) when they expected to be dealing with Suzanne. Their regular
studio fees were discounted by 50%.
• Cindy Strauss (office manager) made bookings for 200 outdoor sessions and 12 weddings
at the Gatineau location. All of the wedding parties a
ived but only 175 of the other
customers showed up. When there were scheduling conflicts with people a
iving late for
egular studio sessions, both groups of customers received a 50% discount on their studio
fee, which happened 20 times last year.
• Actual digital images and prints revenue was $402,400 last year.
• In 2017, total variable costs were $407,000.
• Income before tax was $18,000 for XXXXXXXXXXThe 2017 expected tax rate for TQS is 16%.
• Suzanne prepared the budget herself, using the prior year’s actual results as her guide.
She increased revenue by 10% based on what she wanted the company to achieve. The
details of the budget were not shared with the rest of the staff.
• The Gatineau location could accommodate up to 400 studio bookings and 30 weddings
each year if the barn was renovated. Volume would be expected to increase at a rate of
20% per year. TQS expects a return on its investment of 10%.
• The company would invest in more marketing and hire a site manager to make sure people
are familiar with the location. Annual costs for the marketing would be $10,000 and the
salary for the site manager would be $50,000.
CPA MOCK Evaluation PM Elective Module Page 4
© 2017, Densmore Consulting Services Inc. All Rights Reserved.
APPENDIX III
NOTES FROM DISCUSSIONS WITH STAFF
1. Photographers
The company has two full-time photographers on staff (in addition to Suzanne) and hires
additional contractors if there are conflicting schedules. Anne Hawley and Jon Lafferty have
een with the company for five years. For the first few years after TQS was incorporated,
Suzanne did all the photography herself. She hired Anne and Jon when she found she
could not keep up with the demand. The full-time photographers are salaried employees.
2. Production staff
Peter Grouse manages the digital imaging and technical side of the business. In addition to
producing all of the images in the production facility, he manages a full-time staff of three
computer technicians and is responsible for ensuring the company has the latest in
electronic and digital equipment to maintain its competitive edge.
“We developed new processes this year to keep down costs,” he told you. “I just don’t
understand why Suzanne thinks this was a bad year. We managed to hold related costs to
57% of digital images and print revenue and that was a lot better than we had done before.”
3. Sales associates
After Peter’s team processes the pictures, sales associates send proofs to customers. To
prevent customers from simply printing out pictures from the proofs, the company encrypts
the files so the pictures cannot be saved or printed until a contract has been created to
determine which pictures the customer wants to purchase.
One full-time and three part-time employees work in sales, all of whom are paid a salary. If
a customer is only purchasing a few images, the price per image starts at $100. As the
volume increases, the price goes down to a minimum of