Reid’s Rides sells high quality BMX bikes for $485 each. The cost to produce the bikes average $335.00 each. Depreciation expenses run $2,000 per year. Utilities average $1100 per month, insurance is $2,475 per year, vehicle gas averages $85 per month, phone and internet is $255 per month and rent is $2,000 per month. Vehicle license and other fees are $795 per year. In addition, Reid has a budget for tools at $75 per month. Last year Reid sold 597 bikes. Part time help is $7,800 per year. Reid has the following assets, miscellaneous parts $8,955, tools $4,600 delivery/service truck $22,000, office equipment, display racks, computers, phones all equal $17,000 with an inventory of 80 completed bikes. The company has a five-year loan. The loan amount at the start of the year was $55,000 with an interest rate of 6.5%. Accumulated depreciation in the amount of $15,000. Operating cash is $10,000, additionally he has cash in savings of $30,000. His tax rate is 24%. Reid averages $4,500 in accounts receivable and $2,000 in accounts payable. Reid operates as a sole proprietorship.
1. Calculate the breakeven amount in dollars for Reid’s Rides for 2016. (Do not include depreciation) How many bikes must be sold to meet the breakeven amount?
2. How many bikes must Reid Sell to make a profit of $30,000 and for $50,000? (Make sure to include depreciation and taxes)
3. Reid believes sales will increase by 10% next year. In addition, he expects the cost of goods sold to increase by 3% and other expenses to increase by 5%. (Loan payments remain the same) The owner wants a profit of $30,000. Construct an income statement that reflects the increase in sales.