question archive Tyler Smith had worked in an upholstery shop for 10 years
Tyler Smith had worked in an upholstery shop for 10 years. Last year Tyler's wages were $20,000. Latley, Tyler had been unhappy with the shop's owner. Convinced that he could run an upholstery shop that did better work at a lower cost, Tyler decided to go into business for himself and opened CLASSIC UPHOLSTERY SHOP.
To get the business going TYler decided to invest heavily in advertising. He spent $6,000 on advertising aimed at consumers and another $2,000 on advertising aimed at getting work from interior decorators and interior design stores. Tyler also purchased industrial sweing machines costing $4,000 and other tools and equipment costing $3,000. He estimated that the sewing machines can be used for about five years before maintenance costs will be too high and the machines will need to be replaced. The other tools and equipment are not as durable and will have to be replaced in three years.
At the end of the first year of business. Tyler had received $80,000 in cash from customers for upholstery work. Tyler was owned another $2,500 from customers who are not required to pay cash but are billed every 30 days. A review of Tyler's checkbook shows he paid the following expenses (in addition to those mentioned previously) during the first year of busines.
Upholstery fabric $40,000, Other Supplies 10,000, wages-part-time assistant 9,500, rent 4,800 Insurance (two year policy) 3,200, Utilities $2,500 Misc expenses 1,700
Tyler utility bill for last month of the year has not arrived. He estimates that the bill will be approximately $320. Tyler keeps some stock of upholstery in popular colors on hand for customers who do not want to wait for special-order fabric to arrive. at the end of the year about $14,000 of the fabric purchased during the year was in store stock. In addition $2,300 in supplies had not been used. How much profit did Tyler make in his first year of business? Do you think it was a good idea to open the upholstery shop or woukd Tyler be better off with his old job? What account statements are used?