Basic Boating

Adam Barner is the owner of Basic Boating, an independent dealer in used boats located in a small town near a major lake. Adam purchased used boats at auctions, through agreements with several dealerships that do not wish to sell the trade-ins they receive, and as trade-ins or direct purchases from private individuals. As the name of Adam’s business implies, he specializes in older lower-priced boats. For the most part, Basic Boating’s sales are to first-time boat owners. However, he sells a variety of styles of boats. Adam operates strictly on a cash purchase basis, although he has a working agreement with a local finance company, which provides financing to many Basic Boating customers.

Adam has a staff of five salespersons. His salespersons are paid a small salary, but the bulk of their income comes from commissions. The commission has two components. The first component is a percentage of the sales price of the boat. This commission rate is negotiated and varies across the sales staff. Generally, Adam starts new salespersons with a small commission with the promise to raise the commission rate if they prove to be effective and remain with the firm. The second component is a commission on the mark-up on a boat. Mark-up is determined as the difference between dealer cost and the sales price. Dealer cost is recorded as the amount Adam paid for a boat. In the case of trade-ins, the dealer cost recorded is Adam’s estimate of the boat’s wholesale value. Prices in this industry are very much subject to negotiation. Sales are negotiated by the sales staff but much be approved by Adam. Adam feels that it is necessary to base much of his sales staff’s commissions on the mark-up on the boats they sell. This reduces their incentive to squeeze Adam’s profit margin in order to make sales. This commission on mark-up is the same for all salespersons: 5 percent.

Lynn Davis has served as Adam’s secretary and bookkeeper for 7 years. All records have been kept in manual form. However, the scale of operations has expanded substantially in recent years to the point where it has become very difficult for Lynn to keep the books up to date. Two years ago, Lynn took an introductory computing course at a local community collage. Since that time, she has been pressuring Adam to buy a PC so that some of her work can be computerized.