Joanne is a stay-at-home mom whose child is about ready for kindergarten and school so Joanne now has free time during the day while her child is at school. Joanne is thinking about what she can do during the time her child is in school.

She recalls making a step stool for her daughter who enjoyed cooking with her in the kitchen. The child was too short, so she made the step stool for the kitchen. A number of other moms saw the step stool (see image) and wanted to purchase one. Joanne is now making the step stool for friends but is also thinking of making more and selling them to other families.

Option 1: Joanne makes these step stools for a market of families, and she is calculating the costs and revenue aspects. For each step stool, Joanne needs $50 in supplies such as wood, fasteners, and paint. She feels that she can sell each one for $250. To do this, she needs to buy the following tools: a skill saw - $150, jigsaw - $55; sander $45 and drill - $45. She would also like to sell this on an online shopping platform at a cost of $35 per month. Joanne also found a children’s store that will charge her $50 a month to rent the space and any units sold, she keeps the money. She realizes that if she bought a used table saw, it would make things run quicker as she can cut all the pieces easier. She found a used table saw that was 2 years old for $400 and feels that she could get 3 more years of use out of it so she bought it and will sell it after 3 years.

Option 2: Joanne also explored the idea of hiring someone to prep and cut the wood for her so all she needs to do is just assemble the products and that would save time. She found “DIY Woodworks” and they said that they could cut and drill holes for each step stool for $150. That means Joanne still needs to purchase the wood and supplies to give “DIY Woodworks” which would be $50 per stool. She would still like to create the online store for $35 a month and take up the offer of $50 a month for the store space. She would still just need a drill for $45 to put the pieces together but now she would like to sell the step stools for $300 because it will be better quality than having her do the work herself and spoilage on any wood she does not cut correctly.

She has come to you for some insights:

a) Considering the table saw for $400, if there is equal distribution of depreciation over 3 years, what is the value at the end of the 3 years that she could sell the saw for - 2 marks

b) Share B/E points in units for option 1 for the first year only 

c) Share B/E points in units for option 2 for the first year only 

Answer rating: 100% (QA)

a The value at the end of the 3 years that she could sell the ... View the full answer