ACCT $621$ Individual Assignment$-$ Sky$$s Skateboards

Sky is the owner of a small business called Sky$$s Skateboards. Sky$,$ who grew up in a circle of avid boarders, started the business last year, initially adding cool designs to her siblings$$ and friends$$ skateboards. Sky is $19$ years old and has ambitions of starting her college degree in three years$$ time, at which point, she will close down her business operations.

Current Business Plan

For the past year, Sky has customized used skateboards for $$40$ each. The average job cost her $$15$ of materials and took about an hour of her time. Initially, she averaged $20$ designs a month. This number peaked in the summer $($beginning of June to the end of September$)$ at about $35$ designs monthly. By the end of the year, the average had dipped to about $20$ a month again. Sky incurs overhead costs that average out of $$5$ per customized skateboard. Sky believes she has great margins on her products, but is wondering if there should be a cost attributed to labour or time spent per board to properly cost it$.$ She knows that for performing similar work at a skateboard shop nearby, the cost per hour to customize boards is $$10$ per hour. She has no other operating costs to consider.

Sky is wondering what she should project for this business activity next year, assuming demand increases by $5\%,$ but is also curious as to what her best$-$ and worst$-$case scenarios might look like relative to the projected current year demand.

Worst Case Scenario

She believes that in a worst$-$case scenario, sales may decline by $20\%$ throughout the year, with exception to the June to end of September summer period, where sales may decline by $10\%$ only. In this scenario, she believes it would take $90$ minutes per design, as opposed to an hour $($status quo$).$

Best Case Scenario

In the best$-$case scenario, sales will increase by $15\%$ year$-$round, reaching a $25\%$ increase for the summer months. In this scenario, she believes it would only take her $45$ minutes per design, as opposed to an hour $($status quo$).$

Analysis

Please prepare an analysis to advise Sky on financial projections for the best case, worst case, and status quo scenarios next year. She would also like to know her contribution margin per unit for each of the potential scenarios for next year. Please demonstrate your calculations by using an appendix or by embedding a table within the report to show your work.

Sky enjoys working on old boards as it allows her to connect with local members of her community and learning about their skating journeys. The personal element of this business models makes her feel fulfilled at what she does. She also enjoys the fact that these boards are not extremely time consuming to complete so she has more time to study and spend time with friends. It is also a process she is familiar with and has gained a level of mastery at$.$ It allows her to unwind, destress, and make some extra money.

Potential $($New$)$ Business Plan

Over the holiday season, Sky had done some research and found she could order quality skateboards in basic colours $($black$,$ white, blue, etc.$)$ for $$60$ each. She expects to sell boards for $$110$ each after designing them. If a customer wants to request a specific design, she will charge a premium and sell the skateboard for $$125.$ Sky anticipates that each new skateboard will require $$20$ in materials $($after initial purchase$)$ and require two hours of her time. For custom designs, she is budgeting an extra $30$ minutes for communicating with her customer. For the time being, Sky will continue selling out of her parents$$ garage as it is free of charge for her. She is planning on relying on word$-$of$-$mouth marketing and perhaps some newsletters she makes herself and distributes by hand to keep costs low too. Her concern with the new business model is that there may be a learning curve associated with the new processes and it may compromise the quality of her work that her customers are used to$.$ It will also be a more stressful undertaking and will take up more of her time than her current business model. She does also see this as a challenge that may pull her our of her comfort zone, and she also knows that should the new model not meet her expectations, she could stop and revert back to her old model.

Sky$$s friend, Libby, says she can design and print unique newsletters monthly for $$400$ per month. Libby has not always been the most trustworthy friend to Sky but sees this as an excellent opportunity to reap the benefits of her $($Sky$$s$)$ hard work. She would like Sky to sign a contract for the next $36$ months, agreeing to pay her $$400/$month if she would like to use her advertising service. This would lock Sky into a three$-$year contract with Libby starting next year when she is $20$ years old. Sky likes the idea of advertising more through Libby$$s unique newsletters but is wondering if the cost$-$benefit makes sense. She is projecting $200$ skateboard sales under this new business model, of which $25\%$ are custom design $($$$12$