Hollydazzle

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Submitted by jkandi to the category Business and Industry on 02/18/2011 06:52 PM

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1. Evaluate the projected income statement for Hollydazzle presented in Exhibit 2. Is this income statement appropriate for projecting profitability? Why or why not?

The issue with this income statement is that Site Maintenance is not calculated in the Cost of Goods Sold. This cost is Hollydazzle’s equivalent of their ‘store rent.’ Adding this lowers their Gross Profit estimates.

In addition, when making the decision to go into business, they need to also consider the Opportunity Costs involved. Their Opportunity Costs are $375,000 plus the value of the benefits they would also earn. These would not be seen on their Income Statement, but they are relevant as a part of their decision process.