Of the costs above, Bottas wants to categorize direct material, direct labour, and manufacturing

overhead. He$$s uncertain of the differences between product and period costs and wishes to understand

these concepts a bit better. Bottas$$s friend Lewis tells him that the best way to allocate his overhead is

on the basis of direct labour hours. Bottas trusts Lewis since he got the promotion in the corporate

position.

Given his revenue mark$-$up and costs highlighted, he is also curious as to what the breakeven number of

bikes are that he should push to sell. He has seen that bike mechanics charge around $$60$ to $$100.$ He is

likely to do the same, as he expects to spend about $7$ hours a week on repairs for customers and clients.

He will likely charge on a per hour basis plus parts.

Rent on the store is contracted for $$60$ per square foot for a total of $2,226$ square feet at the corner of

Georgia St and Denman Street. The expectation is that $50\%$ of the space will be allocated to repairs and

storage and the other $50\%$ will be retail space for bikes sales.

A friend of Bottas, Emilia, works full$-$time as a barista and is always looking for a snack while finishing her

long rides. She$$s interested in subleasing $25\%$ of the total space to create a coffee shop with fresh baked

healthy goodies to keep cyclists fueled on their rides$-$ she thinks it will be a great addition to the space.

Emilia has promised to split her profits equally with Bottas if he provides the space for her for free. She

thinks it$$s a great way to bring people into the store and advertise the bikes.

Emilia anticipates she can generate $$2,000$ of monthly sales revenues to start $($cost of sales will be a

constant $25\%$ of revenues$),$ but expects the revenue number to double up each quarter during the first

year, and flat for the months after that. She$$ll spend $$1,500$ a month on advertising $($on a continual

basis$)$ for the store and help get the word out on social media through her network of Vancouver

cyclists. She came in first place at the last Fondo Race and has had a bit of local stardom.

Without Emilia, Bottas would likely have to pay $$175,000$ up$-$front for the same level of impact for

advertising. He also intends to make a shiny new website and get heavily involved in social media

marketing by paying $8$ influencers $$7,000$ each to promote his products and services for the next year.

He wants some cool videos of himself cycling to promote his bikes as well. He wants to ask some film

students to do this for free for exposure and practice of their craft. One of the students sent him an

angry email, but Bottas believes she will get over it$.$

Hearing of his relationship with Limano, a competing company CRAM has come to Bottas and offered

him a discount on the brake pads. Limano offers them to Bottas for $$50$ per unit and CRAM is offering

them for $$40$ per unit. Each bike needs two brake pads. Limano has been in the bike business for $102$

years and CRAM has been in business for $36$ years and focusing on innovation. The CRAM parts are

manufactured locally, but there are talks of moving the operations to Latin America. Limano$$s

operations are located in Sri Lanka and there is usually a three to six week wait when parts are ordered,

however they have always been reliable and provide Bottas with loyalty discounts on other parts

provided.

Bottas wants some assistance in deciding whether to incorporate his operations or keep operating by

himself. He$$s also thought of bringing in Emilia in as a partner, but doesn$$t know how much money he

should ask her to invest. She seems to be willing and have a bit of capital from the Fondo winnings that

she can contribute.

Lastly, Bottas wants to plan for the future and prepare a comprehensive budget for the next $12$ months.

Today is July $1$ and he wants a rolling $12-$month budget incorporating all the costs and items detailed. He

estimates that sales will be constant, but will spike by $15\%$ next May and continue steadily into the

summer months.

All other costs are expected to stay relatively constant each month. He knows he hasn$$t given you all the

information needed, and welcomes any additional information you can provide.

Having a pulse on the business is important so he is looking for your recommendation on how to

evaluate each of the bike types and to have an idea of how to compare actual results to budgeted. He

also wants detailed instructions on how to ensure he continually has up to date records and how to

account for his business and what journal entries he$$ll routinely see as he receives raw materials from

Limano, assembles, stores and sells bikes. Whats do you suggest if the partnership should be considered or not? Is sole proprietorship a better option $,$ suggest why $.$ or a company all together