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Accounting Analysis

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A new snowboard rental store rents snowboards for skiing on a weekly basis for $75/week including the boots. The skiing season is 20 weeks long. The store owner can buy a snowboard and boots for $550, rent them for a season and sell them for $250 at the end of the season. The store rent is $7,200/year. During the off-season, the owner sublets the store for $1,600. Salaries, advertising, and office expenses are $26,000/year. On average 80% of the boards in any given week are rented. After each rental, the boards must be resurfaced and the boots deodorized. Labor (not included in the $26,000) and materials to prepare the board and boots to be rented costs $7.

1. How many boards must the owner purchase in order to break even?
2. Suppose that the owner purchases 50 boards. What profit do they expect?
3. The owner purchases 50 boards. What fraction of the boards must be rented each week to break even (including covering the cost of the 50 boards)?
4. Explain why the percentage utilization you calculated in #3 differs from the expected rental rate of 80%.

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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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