Question

Course Project Week 4

For this next part of the project you will build the Income Statement and Balance Sheet for the Bike Repair & Maintenance Shop (BRMS) for 2018. Use the information below and add another sheet to your Excel Workbook.

BRMS Information for 2018

In 2017, the repair shop was opened in October and ended the year with a ($10,500) operating loss.

Supply Inventory of parts & supplies maintained	$3,000
Replacement parts are ordered as they are used.
Shop hours of operation: 52 weeks a year.
Monday - Friday 11am - 7pm	8 hrs
Saturday 9am - 7pm	10 hrs
Staff	FTEs	Salary
Manager	1	$      40,000
bookkeeper/purchaser	0.8	$       20/hr
Repairers	2.5	$      18.50/hr

Employee benefits: 20% of salary for the manager; 17% of salary for all others.

Supply costs	$         65,000
utility costs	$           7,200
marketing costs	$         10,000
other costs	$         22,000

Services Provided:

Budgeted: Repair Services:  $100 each for 2,600 repairs

New Packages being considered

Package A: Preventative maintenance service package                                                             $ 80

Package B: Basic inspection, lube, adjust & clean shifting braking system                                                $ 90

Package C: Annual peak performance package                                                                           $100

Package D: Basic inspection, + replace shifting cables & preventative maintenance package        $250

Estimated Services Provided under the new options:

Package A: 25 per week

Package B: 15 per week

Package C: 10 per week

Package D: 5 per week

Bike Repair & Maintenance Shop
Budgeted Income Statement
For the Year Ended December 31, 2018
Revenue
Repair Fees	?
Other Income	?
Gross Revenues	?
Expenses
Salaries & Benefits	?
Wages  & benefits	?
Utilities	7,200
Marketing costs	10,000
Supply costs	65,000
Other costs	22,000
Total Expenses	104,200
Operating Income	?
Income tax	?
Net Income	$(43,692)
Profit Margin	?

a) For the first full year of operations, BRMS was budgeted to lose over $40,000 performing repair services. These repairs have high fixed costs for the replacement parts in the repairs. If BRMS decided to expand their services to provide bicycle inspections and preventative maintenance, which use more employee time than supplies, what would the projected change in profit be?

b) If a decision is made to add more service oriented repairs is there a change in fixed and variable costs for repair services?

c) Complete a new ACTUAL Income Statement based on your decisions in a & b. Then complete the Balance sheet below.  

Bike Repair & Maintenance Shop
Balance Sheet
December 31, 2018
Assets
Cash	$                     8,500
Investments	-
Accounts Receivable (net)	6,000
Prepaid Expenses	3,000
Inventory	?
Plant, Property & Equipment	5,000
Less: Accumulated Depreciation	(167)
Total Assets	$                25,333
Liabilities
Accounts Payable	$                     4,500
Accrued Liabilities	700
Salaries Payable	4,000
Long-term liabilities	-
Total Liabilities	$                     9,200
Common Stock	?
Retained Earnings	?
Total Stockholders' Equity	?
Total Liabilities & Stockholders' Equity	?

Next Steps:  Financial Analysis for both BRBS & BRMS.

Using the information below for BRBS complete the financial metric analyses as indicated in Chapter 9 of the textbook for both BRMS (above) & BRBS.

The Income Statement for the Buy-Right Bike Shop is provided below for 2017 and 2018.

BUY-RIGHT BIKE STORE
Income Statement
	2018	2017
Sales - Online	$   11,080,000	$  6,240,000
Sales - In store	580,400	312,000
Sales returns	221,600
Gross Revenues	11,438,800	6,552,000
Cost of Goods sold	5,540,000	3,276,000
Contribution Margin	$      5,898,800	$  3,276,000
Expenses
Salaries & Benefits	$         144,000	$     139,206
Wages  & benefits	391,880	274,997
Utilities	13,200	13,000
Marketing costs	200,000	200,000
Contributions & Community Involvement	58,040	31,200
Other costs	1,375,000	1,200,000
Operating Income	3,716,680	1,417,597
Income tax	1,077,837	411,103
Net Income	$     2,638,843	$  1,006,494
Profit Margin	23%	15%
Sales volume
Bike C - online	95,000	60,000
Bike A - online	4,800	-
Bike C - in store	5,100	3,000
Bike A - in store	200	-
total Sales volume	100,000	63,000

The Balance Sheet for Buy-Right Bike Store is provided below:

Buy-Right Bike Store
Balance Sheet
December 31, 2018
Assets
Cash		$         1,500,000
Investments		225,000
Accounts Receivable (net)		1,250,000
Prepaid Expenses		30,000
Inventory		58,280
Plant, Property & Equipment		1,800,000
Less: Accumulated Depreciation		60,000
Total Assets		$       4,923,280
Liabilities
Accounts Payable		83,250
Accrued Liabilities		4,414
Salaries Payable		7,913
Long-term liabilities		30,000
Total Liabilities		$            125,577
Common Stock		1,152,366
Retained Earnings		3,645,337
Total Stockholders' Equity		$         4,797,703
Total Liabilities & Stockholders' Equity		$         4,923,280

Answer 1

Solution

BRMS

a) The BRMS decided to expand their services to provide bicycle inspections and preventative maintenance, which use more employee time than supplies, then the profit will increase as the service charge of this package (Package D) is higher.

b) The decision is made to add more service oriented repairs; there will be change variable costs for repair services, as more repairers and bookkeepers are required.

c) Income Statement 31 December, 2018

Revenue	$
Repair Fees (=$100 x 2600)	260,000
Other Income ( as given in part a of the question)	-40000
Gross Revenues	220,000
Expenses
Salaries & Benefits [Manager’s Salary and Benefits]	48000
Wages & benefits [Bookkeeper and Repairers Salary and Benefits]	111492
Utilities	7,200
Marketing costs	10,000
Supply costs	65,000
Other costs	22,000
Total Expenses	104,200
Operating Income	(43692)
Income tax ( tax is zero, as company is in loss)	0
Net Income	(43,692)
Profit Margin (Net income/Gross Revenue)	-19.86%

Balance Sheet 31 December, 2018

Assets	$
Cash	8,500
Investments	-
Accounts Receivable (net)	6,000
Prepaid Expenses	3,000
Inventory (Given, Supply Inventory of parts & supplies maintained)	3000
Plant, Property & Equipment	5,000
Less: Accumulated Depreciation	(167)
Total Assets	25,333
Liabilities	$
Accounts Payable	4,500
Accrued Liabilities	700
Salaries Payable	4,000
Long-term liabilities	-
Total Liabilities	9,200
Common Stock (i)	70325
Retained Earnings (= -10500-43692) (ii)	-54192
Total Stockholders' Equity (i) + (ii)	16133
Total Liabilities & Stockholders' Equity	25333

Financial Metric Analysis:

Working Capital = Current Asset - Current Liability

BRMS = 20500-9200 =$ 11300

BRBS = 3063280-95577 = $2967703

Current Ratio =Current Asset/Current Liability

BRMS = 2.23

BRBS = 32.05

Asset Turnover Ratio = Sales/Assets

BRMS = 220000/25333 =8.68

BRBS = 11438800/4923280 =2.32

Return on Assets = Net income/Total Assets

BRMS = -43692/25333 = -1.72

BRBS = 2638843/4923280 = 0.54