Given the following case, estimate GSCs maximum business income loss and determine the amount of business income insurance based on the estimated maximum loss. In doing so, your group must provide (or show) good work.

Green Supply Company (GSC), a wholesale distributor of specialty home gardening equipment, is located in a suburb of Indianapolis, IN. in a one-story noncombustible building under a ten-year lease. The lease contains a rent abatement clause providing that if the building is damaged by more than 50 percent, GSCs obligation to pay rent will be suspended until the building is restored and able to be occupied by GSC. GSC sells to garden supply stores and hardware stores throughout the Indiana and other adjacent states.

GSC has exclusive distributorship for some of the products it sells. The excusive products, which account for approximately 25 percent of GSCs annual sales, are manufactured by one firm in Cleveland, OH.

In preparation for renewal of GSC property insurance, GSCs CFO, working with GSCs insurance producer, has completed an ISO business income worksheet of the same types as discussed in the textbook. The worksheet estimates of financial data for the policy year commencing October 1, 2016 are summarized in Table 1.

Other key financial estimates for the coming policy year, not contained in the worksheet, are shown in Table 2.

A reliable local contractor has estimated it would take three and a half months to rebuild the entire building should the loss occur in the winter. Severe weather conditions could add as many as thirty days to the period required for restoration. Another month would be needed to install trade fixtures and equipment, and an additional half month would be needed to restock merchandise and to staff the operation with trained employees.

GSCs sales pattern by month is shown in Table 3. GSCs financial officer has estimated that in a worst case scenario, $2,380,000 of payroll and other normal operating expenses would be necessary during the period of restoration. In addition, the financial officer estimates that $95,000 of extra expenses would also be needed during the shutdown period and that $27,000 of income would be lost during the thirty days following the period of restoration before business returned to its normal operation level. Due to the rent abatement clause in GSCs lease, the CFO did not include the rental expense for the six and one-half months.

Table 1. Gardeners Supply Company: Summary of Worksheet Estimates

Net Sales		$18,000,000
Other Earnings		60,000
Total Revenues		18,060,000
Deduct:
Cost of Goods Sold	$13,000,000
Services Purchased from Others	770,000	13,770,000
Business Income Basis for Coinsurance		$4,290,000

Table 2. Gardeners Supply Company: Summary of Non-Worksheet Estimates

Salaries of executives and officers*	$6,480,000
Salaries of designers and computer programmer*	145,000
Wages of other employees*	1,380,000
Power, heat, and refrigeration	165,000
Rent	400,000
Other expense	2,860,000
Interest income	43,000
Net income before income tax	444,000
Income tax	133,000
Net income after income tax	311,000

*Salaries and wages include fringe benefit cost, payroll taxes, and workers compensation premiums.

Table 3. Gardeners Supply Company: Monthly Sales as a Percentage of Annual Sales

January	9.2%	February	10.8%
March	12.6%	April	10.6%
May	9.1%	June	8.7%
July	6.9%	August	6.6%
September	5.4%	October	5.1%
November	5.7%	December	9.3%