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put of Oregon I marlin for over ess, but now be he rate he char larger boat wil

put of Oregon I marlin for over ess, but now be he rate he char larger boat wil

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please refer to the attached scenario

  1. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?
Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better outfitted vessel would allow him to increase the rate he charges per charter. Currently he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the table below. Fishing Unlimited Annual straight-line depreciation on boat $ 8,300 ($175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) Insurance Premium (annual) Maintenance and Repairs (annual) Fishing Tackle and Gear (original cost) Tackle and Bait (per guest) Deck Hand wages (per hour) Dock Fees (annual) Captain's License (annual) Food and Beverages (per guest) Professional Fees (per year) Dock Utilities (annual) $ $ 1,900 $ 3,500 $ 7,000 $ $ $ 2,400 $ 200 50 20 20 25 $ 750 $ 1,200 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat $ $ $ $ 4 hours 550 600 6 hours 650 700 Full Day (9 hours) $ 1,100 $ 1,200
Transcribed Image Text:Scenario Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business, but now believes that a larger and better outfitted vessel would allow him to increase the rate he charges per charter. Currently he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deck hands on each outing, providing better service to his customers. Cost data for Brad's business is shown in the table below. Fishing Unlimited Annual straight-line depreciation on boat $ 8,300 ($175,000 original cost – $90,000 estimated resale value/20 years) Fuel Cost (per hour) Insurance Premium (annual) Maintenance and Repairs (annual) Fishing Tackle and Gear (original cost) Tackle and Bait (per guest) Deck Hand wages (per hour) Dock Fees (annual) Captain's License (annual) Food and Beverages (per guest) Professional Fees (per year) Dock Utilities (annual) $ $ 1,900 $ 3,500 $ 7,000 $ $ $ 2,400 $ 200 50 20 20 25 $ 750 $ 1,200 Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat $ $ $ $ 4 hours 550 600 6 hours 650 700 Full Day (9 hours) $ 1,100 $ 1,200
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