Melody's business will involve fertilizing, seeding, cutting and treating lawns as well as removing snow and applying
Question:
Melody's business will involve fertilizing, seeding, cutting and treating lawns as well as removing snow and applying chemicals to melt ice. Melody plans to bill for her service by charging an hourly fee plus a sales charge per pound for chemicals and seed.
Melody will start here business with $1,500 in cash.
Estimates of projected Employee Hours, Owner Hours, Fertilizer, Seed, and Ice Melt are included in Table 1.
The owner, herself, will frequently work directly with customers. These hours will not be paid even though they will be billed to customers. All of the hours (including the owner’s unpaid hours) will be billed to customers monthly using the billing rate for hours in Table 1.
Fertilizer, Insecticide, Seed, and Ice Melt are billed to customers monthly using their respective billing rates from table 3. All customers will be billed at the end of each month. According to the billing terms, the customers should pay their bills when received in the following month. However, only 4% do so. 91% pay in the second month following receipt of their bill. The remaining 5% don't pay at all (Who knows why?). Uncollected receipts represent a bad debt expense.
Employees will be paid wages based on the rates in table 2. All wages are paid in the same month incurred. Payroll taxes will be 12% of the wages and are also paid in the month in which the wages are paid. The payments to the owner are not wages and are not subject to payroll taxes.
Fertilizer, insecticide, seed, and ice-melt are paid for in the same month purchased. The quantities purchased are reflected in table 1. The costs are reflected in table 2. The owner is concerned that fertilizer and seed might occasionally be in short supply. Therefore, fertilizer and seed must be purchased and paid for in the month before use. Insecticide, for which there is no expected shortage, will be purchased and paid for in the month used. It is expected that the winter will be mild (the Midwest El Nino effect) and therefore the snowmelt chemical will be readily available - these will also be purchased and paid for in the month of use.
The business will spend $2,500 for advertising in May and $1,700 in June. The business will advertise in early November to attract winter snow removal customers. The November advertising expenditure will be $800
The owner will purchase 15 lawnmowers at $900 apiece, a pickup truck for $11,000, a trailer for $4,500 and various other lawn implements for $8,000. All of these purchases will be made in April and also paid for in April.
The owner will borrow $18,000 at the end of April at 12%. The Principal payments will be $500 each month. The Principal payment will not change in amount. The first payment will be made in May. Interest payments on this loan will also start in May. The first payment will be $180. The payment will decrease by $5 each month thereafter.
In addition to the truck, trailer and implement purchases in April, in October the Owner will purchase 5 snow blowers for $900 each and a used snow blade for the front of the pickup truck for $7,500. These items will all be purchased and paid for in October.
The owner will borrow $12,000 early in October to finance these implement purchases. The interest rate on the loan will be 8%. The owner will make principal payments of $600 per month (Starting in October) on this loan. The owner will make interest payments of $80 the first month (October) with the payment decreasing by $4 per month for each month thereafter.
Gas, oil, and other supplies will amount to $1,080 per month and will be incurred and paid monthly starting with May and continuing until the end of October. In November, the gas and supplies amount will decrease to $300 and continue at that rate until the end of March.
Depreciation will be $750 per month starting in May. Depreciation will increase to $900 per month starting in November.
The owner will withdraw $5,000 for personal use per month starting in May.
The owner will start the business with $1,500 in Cash
Table 1: Quantities of Hours, Fertilizer, Insecticide, Seed, and Ice Melt Used
| | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar | Apr |
| Employee Hours | 0 | 1,130 | 800 | 460 | 620 | 440 | 0 | 0 | 80 | 10 | 290 | 40 | 0 |
| Owner Hours | 0 | 160 | 160 | 160 | 160 | 160 | 100 | 75 | 160 | 160 | 160 | 160 | 150 |
| Fertilizer | 0 | 2,500 | 900 | 600 | 200 | 300 | 150 | 0 | 0 | 0 | 0 | 0 | 150 |
| Insecticide | 0 | 1,100 | 750 | 950 | 600 | 200 | 50 | 0 | 0 | 0 | 0 | 0 | 200 |
| Seed | 0 | 1,400 | 750 | 150 | 250 | 150 | 300 | 0 | 0 | 0 | 0 | 400 | 450 |
| Ice Melt | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 150 | 150 | 300 | 250 | 120 | 0 |
Table 2: Cost AmountsPer Hour or Per Pound
| | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar |
| Hours | $16.00 | $16.00 | $9.00 | $8.00 | $7.00 | $7.00 | $9.00 | $10.00 | $12.00 | $14.00 | $14.00 | $10.00 |
| Fertilizer | $9.00 | $9.00 | $6.00 | $6.00 | $4.00 | $4.00 | $5.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 |
| Insecticide | $9.00 | $8.00 | $8.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $4.00 |
| Seed | $15.00 | $12.00 | $12.00 | $6.00 | $4.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 | $3.00 |
| Ice Melt | $4.00 | $4.00 | $4.00 | $4.00 | $4.00 | $4.00 | $4.00 | $4.00 | $6.00 | $6.00 | $6.00 | $6.00 |
Table 3: Billing RatesPer Hour or Per Pound
| | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | Feb | Mar |
| Hours | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $21.00 | $20.00 |
| Fertilizer | $11.00 | $11.00 | $11.00 | $11.00 | 11.00 | $9.00 | $9.00 | $9.00 | $9.00 | $9.00 | $9.00 | $9.00 |
| Insecticide | $12.00 | $12.00 | $12.00 | $12.00 |
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