28 Jun Case Material Red and Jake are both retired cops who served the City of Las Vegas for 35 years. A few years
Case Material
Red and Jake are both retired cops who served the City of Las Vegas for 35 years. A few years after retirement, they decided to open a security consulting business just like most retired cops do.
The firm is named Forest Security Services, LLC (FSSL) and is situated in a 1000 square foot mixed-used office located in the industrial section of town. The monthly rent is $5000 per month, and their monthly all-inclusive utility cost is $150 per month. FSSL is licensed by the state. The annual licensing fee for both city and state costs $500. In addition, their annual insurance costs $3000.
Red and Jake are well connected in the community and the local governmental agencies. Recently they are awarded the license to run a halfway home for youths that were remanded for further rehabilitation after their release and after serving a minor misdemeanor.
FSSL accepted the contract since their office is larger than their need for their security consulting business. They decided to make tenant improvements costing $10,000 to create a separation of the two businesses. 200 square feet of space was allocated for the consulting business and the remainder for the halfway home. These improvements allow them to admit 8 youths to the program. The FSSL halfway home program officially admitted the first batch of enrollees in February of this year. The program runs for a one-month term and consistently has 8 enrollees per month. The state pays FSSL $700 per youth per term. As an outpatient rehabilitation program, they are required to bring their meals and snacks for the duration of the program. Or they can pay an additional $200 per youth per term out of their own pocket for their meals and snacks for the entire term. During the first quarter, 6 enrollees every month purchase the meal plan. In the second quarter, 7 enrollees every month purchase the meal plan, and in the third and fourth quarter, 8 enrollees every month purchase the meal plan.
After the first month of operations, the refrigerator stopped working. The old and dying refrigerator has a salvage value of $300. This appliance is a necessity because all the meals and snacks are stored there. Their options: (a) have a meal delivery service every day that costs $1475 per month. (b) or pick up the pre-packaged meals themselves daily, which costs $35 per day for the food and $10 per day to cover gas and travel time (c) or purchase an industrial refrigerator for $12,000, not including installation and delivery of $100. Per FSSL lease, installing any commercial grade appliance automatically increases their all-inclusive utility rate to $50 per month.
Other relevant cost information includes allocating all applicable costs based on the square footage of each cost center. The consulting business will not participate in the cost of the industrial refrigerator since they have a fully depreciated small dorm-size refrigerator in that area. Since the intake processing is done through the consulting business, FSSL will charge the halfway house business a $25 intake processing fee for each enrollee as part of their revenue. The consulting business earns $1000 per month during the first and second quarters and $1500 per month during the third and fourth quarters annually. Jake and Red each receive a $200 per month salary in the consulting business and $500 each on the halfway house business. FSSL adopts a calendar year basis in maintaining their books.
If necessary, the FSSL will use straight-line depreciation. Life of improvements and equipment is 5 years. For monthly calculations, use 4.33 weeks per month.)
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