Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman

Exercise 33

Amy?s Boards
Amy Laura is opening a snowboard rental store. She rents snowboards for skiing on a weekly basis for $75 per week including the boots. The skiing season is 20 weeks long. Laura can buy a snowboard and boots for $550, rent them for a season, and sell them for $250 at the end of the season.
The store rent is $7,200 per year. During the off-season, Laura sublets the store for $1,600. Salaries, advertising, and office expenses are $26,000 per year.
On average, 80 percent of the boards in any given week are rented. After each rental, the boards must be resurfaced and the boots deodorized. Labor (not included in the $26,000) and materials to prepare the board and boots to be rerented cost $7.
Required:
a. How many boards must Laura purchase in order to break even?
b. Suppose that Laura purchases 50 boards. What profit does she expect?
c. Laura purchases 50 boards. What fraction of her boards must she rent each week to break even (including covering the cost of the boards)?
d. Explain why the percentage utilization you calculated in part ( c ) differs from the expected rental rate of 80 percent.