It is Stellas sixth-year work anniversary and she has justcompleted her 650th flight. She started her flight
Question:
It is Stella’s sixth-year work anniversary and she has justcompleted her 650th flight. She started her flight attendant careeron January 1st , 2016 after completing her HR certificate andflight schooling. At first, Stella enjoyed the international flightand travelling to exotic locations. In the off days between landingand return to Canada, she would visit the city museums and keep aneye out for fashion. Initially, she was working 200 shorter flightroutes which were each from 3 hours to 9 hours in range.Compensation for these flights averaged out at $48 per flight hour.For the long-haul flights greater than 9 hours in length (prominentfrom her second-year onwards), Stella was paid overtime at an added$24 per hour. Typically, there were three long haul flights offeredper month. In 2018, she made $50,000 by booking as many long-haulflights as was possible and was also paid a bonus of $7,500 for heroutstanding performance. 2019 was a similarly good year for Stella-she earned $55,000 but did not benefit from a bonus as the airlinewas struggling to meet its own profit targets. 2020 and 2021brought a dramatic decrease in flight offerings and as Stella wasrelatively junior, she was temporarily laid off by the airline.Finding additional free time, Stella began to watch old fashiondesigner movies, improving her sewing skills, and getting creativewith her mom’s old sewing machine. She ultimately started to focuson creating swim wear and bathing suits. In 2021, Stella sold 40pairs of swimwear – she didn’t keep track of whether it was bikinisor swimsuits for men. In 2020, she sold 18 bikinis as she was notyet making men’s swimwear. Stella spent three weeks designing andexperimenting with different fabrics, cuts, and patterns. Onceperfected, she started to build up her inventory. Uncertain of howto begin selling her products, she noticed her local Farmer’sMarket that used to be held in the town square on Saturdays hadbeen moved online. She reached out to the Farmer’s Market and theyagreed to host her store virtually for 15% commission on each pieceshe sold. Having an avenue to sell her product , Stella started toproduce enough inventory to post and sell through the Farmer’sMarket website. She didn’t read all the terms, but she believesthere was a line in the agreement that said she is not able to sellher products on any other platform online. The contract will lastuntil December 31, 2022. Not knowing the full cost of hermaterials, time and overhead, Stella assumed a retail price of $59per piece was a good starting point. During 2021 and 2022, Stellaleisurely made items whenever she had time or got bored. She workedfrom her apartment (rent of $1,350 per month). She was able to findcheap fabric that sold from $3.50 to $8.75 per yard. Each bikinitook about ½ to ¾ of a yard of fabric to create. Men’s swimsuitstook about 1 to 1.5 yards of fabric. Stella’s goal is to minimizewaste. Using leftover fabric of other swimsuits, she sews patchestogether to make new swimsuits. On average, the elastic, thread,and lining cost, in total, $0.75 per swimsuit. Stella has heard ofthe concept of opportunity cost, but needs help with measuring andallocating the cost of her own time. She also wants advice on howto price her swimwear so that she can, at minimum, break even.Stella’s Swimsuits While working out of her home with her mother’sold machine, Stella is wondering whether it is feasible to open astore where she sells in the front and creates products in theback. Her home is too small to store all the inventory, rawmaterials, and house her work station. If she opens a store, Stellais thinking of hiring an additional seamstress to help withproduction and a sales representative to help her with the retailside. Coincidentally, there is a retail space close to her that hasbecome vacant. Rent starts at $3,000 per month and she will have tosign a three-year lease. Stella is unsure how much she will have topay the seamstress and sales representative. Also, she wants somebroad advice on HR policy. Stella is tired of her sewing machinecontinually breaking down. The threading mechanism takes hersignificant time to fix every time and sometimes causes tears inthe fabric so she has to start over. The current machine cost hermother $575 many years ago. A local repair shops says the machinecan be maintained for $125 per year, which will allow it to be usedheavily for three more years. A replacement sewing machine willmake things more efficient and Stella will be able to make anadditional 3 swimsuits per hour. A new industrial sewing machinecosts $1,400 and Stella is unsure of how she would depreciate it.If she opens the store, she will need two sewing machines. Stella’sfriend Tony is encouraging her to start marketing and sellingthrough social media. He insists that she should start her ownwebsite. Along the way, Tony would assist with designing anddeveloping the website at a cost of $35 per hour for the initialdesign (anticipated workload of 100 hours), followed by a monthlyfee of $120 for maintenance and for collecting orders.Alternatively, Tony is willing to become a partner of her businessand do this work for free for a 40% share of the company. Stellawants your advice on whether this business partnership is a goodidea or not. Two weeks ago, the airline called her and requestedthat she come and continue working for the airline as they areshort staffed. They are offering to pay her $50 per flight hour andguarantee a minimum of 50 flight hours per month plus a definedpension plan when she retires at 65. They will also provide herwith free flights anywhere around the world when she is not workingand three weeks of vacation a year. The airline gave her the optionto come back either full time or part time. If she goes on a parttime basis, she will not have her pension plan. She’s trying todecide whether she should go back to the airline or take herswimsuit business full time. Last week, a local magazine saw herwork thinks Stella’s Swimsuits are incredibly unique. The magazinewants to place a special order of 9 bikinis and 6 swimsuits inthree week’s time. Stella will need to cancel all her flights onshort notice with her employer and work continuously for threeweeks to be able to pull it all off in her home with the old sewingmachine. The magazine has promised to pay her $620 for all thebathing suits. There is no guarantee that her bathing suits will bechosen for the next magazine cover. However, if the models andphotographers like them, they will be published. Stella wants thepros and cons and the calculation of whether or not to accept thisorder. She will not be able to meet any other clients demands andwill need to push back delivery of the existing 20 orders she hasreceived. Stella’s Swimsuits Stella is also wondering what hersales budget would look like. Historically, she has sold on accountwith 30% collected in the month of sale and 70% in the subsequentmonth. Sales are cyclical and higher in the spring and summer andlower in the fall and winter. Stella’s brother who works in thetech industry raves about cryptocurrencies and has stated he hasmade $30,000 through BitCoins and NFTs. Stella has about $7,000saved up in her bank account within the cash balance of $18,000sitting in her bank account at the beginning of this month. She iswondering how she should invest this money. Stella wants toimplement accounting best practices but doesn’t even know where tostart. She wants a detailed analysis of how to get her businessrecords sorted out. Advise Stella on her career path and theoutlook of her proposed business. Produce a business report,including comprehensive analysis, recommendations, and anyquestions you may need to ask Stella.
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young