Nikki Castle started making lifejackets for dogs in her basement part-time 10 years ago after getting a puppy. She wanted to go canoeing but was unable to find a suitable lifejacket for her puppy, so she spent a couple of days fabricating something herself.

When Nikki got to the canoe club, she was flooded with inquiries about her puppy's lifejacket and she started taking orders. Ten years later, her company now has revenues of over $5,000,000 per year, and her lifejackets are sold in 45 different countries through her online store and in specialty pet stores across North America.

Before starting her business, WaterDogs, Inc., Nikki had been working in an insurance company as a clerk. She had always made her own clothes and had taken a few fashion design courses, but did not have a business background. Beginning the company was challenging, and over the first few years of getting her business going, Nikki also took a few online courses in business management and accounting. There were a couple of times that she thought that the business wasn't going to make it-especially in the beginning when she experienced a lot of growth very quickly-but after 6 years was confident enough with the organization to incorporate. She hires an accountant to look after the bookkeeping and goes through an audit each year, but doesn't feel as though the financial statements, and in particular the income statement, provide her with the right information for decision making.

Her income statements didn't seem to fit with what she felt the company was really doing. Yes, the company was growing, but not at the rate that the profit was demonstrating,
Nikki thought. In particular, Nikki felt that 2012 had been a slump year, but the income statement doesn't seem to reflect that. She dug up some additional information on the company and was looking at it when she decided she needed an advisor to help her. She didn't have enough knowledge to be able to figure out what to do.

Direct materials are $12 per unit, direct labour is $6 per unit, and variable manufacturing overhead is $3 per unit for each of the years. The company uses a FIFO inventory system.

2011 2012 2013 4,880,000 4,320,000 5,355,000 Less cost of goods sold: Beginning inventory Add: cost of goods manufactured Cost of goods available for sale Less: ending inventory Cost of goods sold... Gross Profit. Less: operating expenses Selling and Admin Operating income. 2,600,000 3,419,000 4,805,000 3,230,000 3,650,000 4,175,000 5,830,000 7,069,000 8,980,000 3,532,000 5,749,500 7,889,600 2,298,000 1,319,500 1,090,400 2,582,000 3,000,500 4,264,600 3532000 549,500 188960 1,608,000 1,587,000 1,6140,00 974,000 1,413,500 2,650,600 2010 2011 2012 2013 Units beginning inventory Units produced Units sold. 70,000 109,000 175,000 0,000 100,000 120,000 145,000 63,000 61,000 54,000