Classic Upholstery Shop
Tyler Smith had worked in an upholstery shop for 10 years. Tyler’s wages were $20,000. Lately Tyler had
been unhappy with the shop’s owner. Convinced that he could run an upholstery shop that did better
work at a lower cost, Tyler decided to go into business for himself and opened CLASSIC UPHOLSTERY
SHOP.
To get business going, Tyler decided to invest heavily in advertising. He spent $6,000 on advertising
aimed at consumers and another $2,000 on advertising aimed at getting work from interior decorators
and interior design stores. Tyler also purchased industrial sewing machines costing $4,000 and other
tools and equipment costing $3,000. He estimated that the sewing machines can be used for about 5
years before maintenance costs will be too high and the machines will need to be replaced. The other
tools and equipment are not as durable and will have to be replaced in three years.
At the end of the first year of business, Tyler had received $80,000 in cash from customers for
upholstery work. Tyler was owed another $2,500 from customers who are not required to pay cash but
are billed every 30 days.
A review of Tyler’s checkbook shows he paid the following expenses (in addition to those mentioned
previously) during the first year of business:
Upholstery fabric $40,000
Other Supplies 10,000
Wages – part time assistant 9,500
Rent 4,800
Insurance (two-year policy) 3,200
Utilities 2,500
Miscellaneous expenses 1,700
Tyler’s utility bill for the last month of the year has not arrived. He estimates that the bill will be
approximately $320.00.
Tyler keeps some stock of upholstery fabric in popular colors on hand for customers who do not want to
wait for a 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.
1. How much profit did Tyler make in his first year of business?
2. Do you think it was a good idea to open the upholstery shop, or would Tyler be better off with
his old job?
