Handout 1-1
classic upholstery shop
tyler smith had worked in an upholstery shop for 10 years. last year, ty
lately, tyler had been unhappy with the shop's owner. convinced that he
that did better work at a lower cost, tyler decided to go into business form
upholstery shop.
year, tyler's wages were $20,000.
i that he could run an upholstery shop
ness for himself and opened classic
to get the business going, tyler decided to invest heavily in advertising. he spent pas
aimed at consumers and another $2,000 on advertising aimed at getting work it
interior design stores. tyler also purchased industrial sewing machines costing $4,000
and equipment costing $3,000. he estimated that the sewing machines can be used 10
before maintenance costs will be too high and the machines will need to be replaced.
equipment are not as durable and will have to be replaced in three years.
ing. he spent $6,000 on advertising
etting work from interior decorators and
machines costing $4,000 and other tools
machines can be used for about five years
eed to be replaced. the other tools and
ar
at the end of the first year of business, tyler had received $80,000 in cash from cus
work. tyler was owed another $2,500 from customers who are not required to pay ca
every 30 days.
$80,000 in cash from customers for upholstery
lot required to pay cash but are billed
a review of tyler's checkbook shows he paid the following expenses (in addition
previously) during the first year of business:
a the following expenses (in addition to those mentioned
upholstery fabric
other supplies
wages—part-time assistant
rent
insurance (two-year policy)
utilities
miscellaneous expenses
$40,000
10,000
9,500
4,800
3,200
2,500
1,700
tyler's utility bill for the last month of the year has not arrived. he estimates that the bill will be
approximately $320.
tyler keeps some stock of upholstery fabric 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 his 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 would tyler be better
ff with his old job?