In March 2003, Vincent and Anne-Marie Finney started their carpet-cleaning services business in Toronto. The business was geared primarily at young couples; a market that they felt was growing rapidly. Vincent and Anne-Marie had worked during the previous 10 years as salaried employees for different types of organizations. They were frustrated with the fact that their future was in the hands of employers, so they decided to start V & A Carpet Cleaning Services. After 10 years of tremendous success in the business, the couple decided to launch a franchise.
They placed advertisements in different daily newspapers across Canada promoting the franchise business. Bill and Jill Robinson of Ottawa saw the advertisement and called V & A for information about the economics and advantages of managing a carpet-cleaning franchise operation. The Finneys provided the following information:
• Average revenue for cleaning carpets in each household is $120.
• A 20% sales commission per contract is secured by a sales representative.
• Machine operators receive $30 for cleaning the carpets in each household.
• Average costs for gas and maintenance for trucks for each household is $5.50.
• Maintenance charges are $400 per machine for each 100 houses cleaned.
• Monthly rental charges for office and small warehouse for inventories is $1,200.
• Annual depreciation for the equipment is $500.
• Monthly salary paid to Bill and Jill would total $3,500.
Other costs include the following:
• A $1,400 monthly salary for office employees.
• A $500 yearly expense for various insurance policies.
• A $125 monthly expense for utilities and telephone.
• A yearly $10,000 fee for the franchise.
• A $5.00 franchise fee for each household cleaned.
On the basis of the above information, calculate the following:
1. How many carpets would Bill and Jill have to clean each year to start making a profit?
2. How much revenue would they have to earn each year in order to break even?
3. How many carpets would they have to clean each year if they want to earn a yearly profit of $45,000 before tax?
4. Prepare a statement of income on the basis of earning $45,000 in profit before tax.
In March 2003 Vincent and Anne Marie Finney started their carpet cleaning