Question

Case Study #2

Background:
Nicky’s Carpet Cleaning Company

You run Nicky’s Carpet Cleaning Company which cleans carpets for commercial businesses. On average one carpet cleaner can clean six offices in a seven hour shift, Monday through Friday. You have 100 cleaners currently working for you, and they work 250 days per year. A recent analysis of the rework that must be done finds that, on average, one in every 6 carpets cleaned is not up to your standards. Because of Nicky’s “Satisfaction Guarantee” when a carpet does not meet the standards it is redone immediately at no extra cost to the customer.

The profit on cleaning each office is $25. You pay your cleaners $15 per hour. ($105 per day) When you have to re-clean a carpet you lose $20 in employee time.

Your training manager has done a needs assessment regarding this issue at your request and has identified the cause as being a lack of KSA’s. The training manager proposes a training program that he estimates will reduce the re-cleaning by 50%. The training would take 4 hours and they could train 25 employees per session. Training could therefore be completed for all 100 employees over two Saturdays, by running two four hour sessions on each Saturday.

Costs Associated With Training

Postage to mail out pre-training materials to all employees $300

20 days of training manager’s time for creation $3,200 of training program

Training Facilitator Costs ($325 per day) $650

Training Facility Rental
AV Equipment Rental for 2 Days ($1000 per day) $2,000 Refreshments for employees $600

Employee Wages (Nicky decides to conduct training on a $8000 Saturday and pay his employees an extra $5 per hour as
overtime) $20 per hour per employee

Cost of Facilitators Hotel Room/Expenses $600

Clerical Support to assist training manager in creating
Program- (20 hrs @ $10 per hr.) $200

External Consultant Fees associated with reviewing
Training Program created by training manager $800

Photocopying costs to produce brochure for all employees
with training information sent out prior to training. $200

Administrative support to prepare attendee lists/schedules $120 for training dates ( 10 hrs. @ $12 per hour)

Cost to purchase new LCD projector for training
department to share as old one no longer works $2000

$1000

Case Study Questions

1. In reviewing the related costs associated with the training program please identify which ones falls into the following categories:

   Development Costs, Direct Costs, Indirect Costs, Trainee Compensation, Overhead Costs

2. How much do the re-cleanings cost Nicky each year? Show all mathematical calculations.

3. After the training is complete, what is the estimated annual cost savings each year? Show all mathematical calculations.

4. What is the total cost of conducting the training?

5. If training was cancelled the day before, what would the training costs then be? (assume no cancellation fees would apply) Please list items, show related costs and provide a final total.

Answer 1

1.

Development Cost -

Training Facilitator Cost - 650

Postage - 300

AV Equipment Rental - 2000

Refreshments - 600

Facilitator Hotel Expense - 600

Photocopy Cost - 200

Adminstration Support Cost - 120

Direct Cost-

Employee Regular Pay - 6000

($15 per hour per employee)

Indirect Cost -

Manager's time for Creating Program - 3200

Clerical Support to Manager - 200

External Consultation Fee to review program - 800

Trainee Compensation -

Compensation paid to employee - 2000

($5 per hour per employee)

Overhead Cost -

Sharing cost of Projector - 1000

2. Calculation of re-cleaning cost per year:(Before Training)

= Total Carpets recleaning per year X Loss in employee time

= (6 Carpets per employee per day X 100 employees X 250 working days X 1/6 ) X $20

= 25000 X 20

= $500,000 per year

3. Calculation of cost Saving each year (After Training) :

= Recleaning Cost before Training X 50 %

= $ 500,000 X 50%

= $ 250,000

4. Total cost of Training :

Particulars	Amount
Postage	300
Training Facilitator Cost	650
AV Equipment Rental	2000
Refreshments	600
Employee working hours Lost	60000
Employee Cost	2000
Facilitator Hotel Exp	600
Photocopy Cost	200
Administration Support Cost	120
Sharing Cost of Projector	1000
20 days manager time for creation of plant	3200
Clerical Support	200
External Consultation fee to review program	800
Total	71670

5. If Training is cancelled the day before , following will be the total cost :

Particulars	Amount
Postage	300
Photocopy Cost	200
20 days manager time for creation of plant	3200
Clerical Support	200
External Consultation fee to review program	800
	4700