Tyler Smith has worked in an upholstery shop for 10 years. Last year, Tyler's wages were $20.000.

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Question:

Tyler Smith has worked in an upholstery shop for 10 years. Last year, Tyler's wages were $20.000. Lately, Tyler has been unhappy with the shop's owner. Convinced that he could run an upholstery shop that did work at a lower cost, Tyler decided to go into business for himself and opened Classic Upholstery Shop.

To get the business going, Tyler decided to invest heavily in advertising. He spent $6000 on advertising aimed at consumers and another $2000 on advertising aimed at getting work from interior decorators and interior design stores. Tyler also purchased industrial sewing machines costing $4000 and other tools and equipment costing $3000. 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 3 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 $2500 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 (2-year policy) $3200, utilities $2500, miscellaneous expenses $1700.

Tyler's utility bill for the last month of the year has not arrived. He estimated that the bill will be approximately $320.

Tyler keeps some stock of upholstery fabric in popular colors on hand for customers who do not want to wait for special-order fabric to arrive. At the end of the year, about $14,000 of the fabric purchase during the year was in his stock. In addition, $2,300 in supplies had not been used.

Questions: (show all computations please)

a) How much profit did Tyler make in his first year of bussines?

b) Do you think it was a good idea to open the upholstery shop, or would Tyler be better off with his old job?