Grear Rafting Analysis
Introduction
Grear Rafting Company, owned by Peggy Grear is a company that provides rafting services to rafters. Grear Rafting Company, henceforth referred to as Grear Rafting, has just gone through its first season in business on which it provided rafting services to 1,048 rafters for seven (7) days. During these seven (7) days, Grear Rafting also provided meals to the rafters three times a day, it also provides the rafts used during the season. During its first season, however, Grear Rafting experienced a loss. Peggy Grear has enough savings to get Grear Rafting through another season or two of business, but Grear Rafting would have to shut its business down if it does not make a profit (Houston Baptist University, 2012). In this paper, I would show what Grear Rafting requires to break-even and make a profit. Grear Rafting’s income statement from its first season is shown below on Table 1. Table 1. Grear Rafting CompanyIncome StatementYear Ended December 31, 2012 | Revenue | | $1,048,000 | Rental Expense | (208,600) | | Meals Expense | (314,400) | | Advertising Expense | (50,000) | | Compensation to Guides | (471,600) | | Salary Expense | (16,500) | | T-shirts and Hats Expense | (31,440) | | Office Utility Expense | (3,850) | | Gross Income (Loss) | | $(48,390) |
Variable and Fixed Costs There are different types of costs associated with the running of Grear Rafting. In order to develop a plan for Grear Rafting to make a profit, it is necessary to identify those costs that can be changed, and those that cannot be changed. 1. Variable Cost: A variable cost is a cost that increases in total as output increases and decreases in total as output decreases. (Rich et al, 2010). For example, cotton used in making cotton shirts is a variable cost. As a company makes more cotton shirts, it needs more cotton to produce the shirts. The
Grear Rafting Company, owned by Peggy Grear is a company that provides rafting services to rafters. Grear Rafting Company, henceforth referred to as Grear Rafting, has just gone through its first season in business on which it provided rafting services to 1,048 rafters for seven (7) days. During these seven (7) days, Grear Rafting also provided meals to the rafters three times a day, it also provides the rafts used during the season. During its first season, however, Grear Rafting experienced a loss. Peggy Grear has enough savings to get Grear Rafting through another season or two of business, but Grear Rafting would have to shut its business down if it does not make a profit (Houston Baptist University, 2012). In this paper, I would show what Grear Rafting requires to break-even and make a profit. Grear Rafting’s income statement from its first season is shown below on Table 1. Table 1. Grear Rafting CompanyIncome StatementYear Ended December 31, 2012 | Revenue | | $1,048,000 | Rental Expense | (208,600) | | Meals Expense | (314,400) | | Advertising Expense | (50,000) | | Compensation to Guides | (471,600) | | Salary Expense | (16,500) | | T-shirts and Hats Expense | (31,440) | | Office Utility Expense | (3,850) | | Gross Income (Loss) | | $(48,390) |
Variable and Fixed Costs There are different types of costs associated with the running of Grear Rafting. In order to develop a plan for Grear Rafting to make a profit, it is necessary to identify those costs that can be changed, and those that cannot be changed. 1. Variable Cost: A variable cost is a cost that increases in total as output increases and decreases in total as output decreases. (Rich et al, 2010). For example, cotton used in making cotton shirts is a variable cost. As a company makes more cotton shirts, it needs more cotton to produce the shirts. The
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