Six months have gone by and Frank is doing pretty well....he thinks...but when h
ID: 1255749 • Letter: S
Question
Six months have gone by and Frank is doing pretty well....he thinks...but when he is asked if he is making any money, he has to stop and consider, "Am I"? We are going to make some assumptions and help him determine whether or not there is a profit.
I have started the discussion with some assumptions about how Frank has done from a sales and cost perspective.
Then all of you will brainstorm together with focus on answering "Did Frank turn a profit after the first six months of business?"
Hint: Consider what costs are to be taken into account in relation to these sales.
Once the framework of revenues/expenses is established, explore how to track this performance on an ongoing basis.
Use this information
I plan to start a hotdog cart vending business in the Holtville Business Complex (HBC) down town Tennessee. I look forward to target the human traffic which frequents the area between the hours of 11:00am to 3:00pm from Monday to Saturday every week. A feasibility study which I conducted in the area reveals an inadequacy of hot dog vendors and restaurants. Currently there are only two hot dog cart vendors and three restaurants; as a result the huge working populations are under serviced. Most of these people have to work really walk or drive long distances in order for them to get a bite during their lunch hour or grab a late afternoon snack. What with the long queues behind the two hot dog car vendors and the overcrowded restaurants to serve the burgeoning business people and ‘hot dog hungry’ students of Tennessee University. I have resolved to be the third vendor, and I will position myself strategically in the complex having the knowledge that the weekday population of the Holtville Complex is 4500 people, excluding Saturdays of which I will also be operating.
Recent estimates from the American Hot Dog Council indicate that Americans consume 20 Billion hot dogs every year. Actually, 95% of the US household enjoys them. Relative to the entire American Population, that translates to 70 hotdogs per person per year, and approximately 15% of this is purchased from the vendor’s carts. Considering these figures and retail price of $4.50 per serving and a side order and beverage accompaniment, the annual sales potential in the Holtville Business Complex are is $245,500. Based on all these facts, it will be very strategic to operate in this are as vendor cart and to tap in into the pot entail sales as outlined in the above figures.
The business will be registered as Frank’s Dogs Vending Co.”To set up the business I require a 2 year loan of $9,500 in addition to my own investment of $4,500 to cater for the purchase of the cart and start up supplies.
Frank’s Dogs Vending Co Income Statement
Four Months Eight Months Twelve Mon
Ended Dec 31, Ended Dec 31, Ended Dec31,
2015 2015 2015
Revenue $13,844 $17,973 $21,321
Direct Cost $5,948 $7,744 $9,198
Gross Profit $7,895 $10,228 $12,123
Gross Profit % 57% 57% 57%
Operating Expenses
Salary $0 $0 $0
Business Licenses and Permits$500 $500 $500
Supplies $2400 $2400 $2400
Equipment $600 $0 $0
Utilities $330 $330 $330
Repairs and Maintenance $600 $600 $600
Advertising and Promotion $690 $890 $1060
Expensed Portion of Other
Current Assets $0 $0 $0
Depreciation and Amortization $140 $140 $140
Total Operating Expenses $ $ $
Operating Income $442 $647 $749
Other Expenses (& Other Income)
Loss (or Gain) on Sale of Asset $0 $0 $0
Interest Expense $230 $160 $660
Total Other Expenses
(& Other Income)
Income Before Income Tax $3350 $5600 $7430
Income Taxes $310 $520 $690
Net Income $3040 $5080 $6740
Net Income / Sales 22% 28% 32%
Balance Sheets
Assets (expand the list to include all assets)
Dec 31,2015
Current assets:
Cash and cash equivalents
$ 33,723
Accounts receivable
25,204
Inventories
0
Other Current assets
0
Total current assets
58,927
Long Term Assets
116,000
72,000
Accumulated Depreciation
Total Long term Assets
44,000
Total Assets
$102,927
Liabilities and stockholders' equity (Not needed for Part 1)
Current liabilities:
Accounts payable
3,557
Sales Taxable payable
0
Short Term Debt
0
Total current liabilities
3,557
Long-term debt
1,513
Total liabilities
5,070
Paid in capital
63,000
Retained Earnings
(45,600)
Profit and Loss Current period
14,860
Total stockholders' equity
32,260
Total liabilities and stockholders' equity
37,330
Assets (expand the list to include all assets)
Dec 31,2015
Current assets:
Cash and cash equivalents
$ 33,723
Accounts receivable
25,204
Inventories
0
Other Current assets
0
Total current assets
58,927
Long Term Assets
116,000
72,000
Accumulated Depreciation
Total Long term Assets
44,000
Total Assets
$102,927
Liabilities and stockholders' equity (Not needed for Part 1)
Current liabilities:
Accounts payable
3,557
Sales Taxable payable
0
Short Term Debt
0
Total current liabilities
3,557
Long-term debt
1,513
Total liabilities
5,070
Paid in capital
63,000
Retained Earnings
(45,600)
Profit and Loss Current period
14,860
Total stockholders' equity
32,260
Total liabilities and stockholders' equity
37,330
Explanation / Answer
Getting profit is the indicator of making money. Net income in the income statement shows profit. Since the net incomes are positive “F” earns profit and makes money.
F’s total amount of profit and money during the year is as under:
Four month’s net income
$3,040
Add: Eight month’s net income
$5,080
Add: Twelve month’s net income
$6,740
Total amount
$14,860
This amount could be cross tallied with the amount “profit and loss current period” in the balance sheet. Both are exactly tallying. Therefore, F makes money amounting to $14,860 during the year.
Four month’s net income
$3,040
Add: Eight month’s net income
$5,080
Add: Twelve month’s net income
$6,740
Total amount
$14,860
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