Dylan Methot (Exhibit 1), the owner/operator of Mostly Mental Shuttles, an outdoor adventure shuttle company based in Kamloops, British Columbia, Canada, had just settled in to begin his daily workout routine at the Acceleration gym in downtown Kamloops. It was mid-morning on a crisp day in early January 2019 and he had risen early at 6 am to complete his scheduled shuttle van run to the Sun Peaks resort, delivering an eager group to a day of shredding the powder on the slopes of British Columbia’s second largest ski resort. He now had the middle of the day to himself before returning to Sun Peaks for the return trip to Sun Peaks at 3:30 pm which would see him home for dinner around 6:30 pm. As his workout progressed, Dylan began thinking about what needed to be done before the upcoming 2019 summer season starting in April. With his new partnership agreement with Sun Peaks Resort he needed to prepare by acquiring an additional shuttle van and mountain bike trailer before the summer season kicked in the middle of June 2019. Methot is an avid mountain biking enthusiast who worked for nearly a decade as a Licensed Practical Nurse. After a difficult day in early 2010, he quit abruptly and decided to begin his new adventure shuttle business. His wife proclaimed he was “mental” for quitting his salaried position and this unique name was incorporated into the name of his new venture, Mostly Mental Shuttles
Mountain biking in Kamloops
The city of Kamloops is set in a region that features steep, technical terrain, and the region’s semi-arid, desert climate, meant trails were usually dry and in good condition (Exhibit 2). Kamloops was second only to the mountain resort of Whistler, British Columbia in providing the backgrounds for mountain bike films. For over thirty years, ranging from the Kranked series in the late 1990s, to many recent Red Bull films, the city was portrayed as a hotbed for mountain biking in hundreds of films. With the city’s exposure came increased mountain bike tourism and local pride. At first an “outlaw sport”, the citizens of Kamloops quickly embraced mountain biking. The local government went as far as to build the Kamloops Bike Ranch, a mountain bike park featuring twelve runs and a dirt jump park for experts. It was this culture of mountain biking that made the city of Kamloops so attractive to Dylan Methot.
Downhill skiing and snowboarding in Sun Peaks Resort
During the winter months, downhill skiing and snowboarding replaces mountain biking for many enthusiasts. The village of Sun Peaks is located about 75 kilometres or 1-hour northeast of Kamloops and features the second largest ski terrain (1,728 hectares) in Canada. Many tourists arrive in Kamloops and arrange transportation to stay in the Sun Peaks Village during winter vacations in the more than 1,500 rental units available. It is also a popular single day destination for Kamloops residents.
Humble beginnings – April 2010 to October 2017
Methot started Mostly Mental Shuttles started in 2010 with a small all-wheel drive van with a giant bike rack and had grown modestly since. Methot focused on providing shuttle van rides on Fridays, Saturdays and Sundays during the months of April to October to mountain bikers. Most were short trips transporting riders and their heavy full suspension downhill mountain bikes the 2 kilometres up Highland Road to the top of the Kamloops Bike Ranch trails for $3 per ride. The company caught on immediately, and Methot knew that he was on to something after his first season in business in 2010. Over the years Methot’s other ventures included weekday evening mountain bike group trip adventures to various regional trails which concluded with pizza and beer at a local pizzeria. Methot also shuttled at major mountain bike events throughout British Columbia and had developed a solid reputation in the mountain bike community as a reliable and trustworthy individual. He is well known for being generous and donating shuttle rides to various community events including the Kids Camp and Legacy Games Race.
In 2015, Methot purchased and outfitted a new Ford Transit T350 15 passenger high roof shuttle van and Huckwagon bike trailer. (Exhibit 3). This increased his capacity to 14 paying passengers per run and allowed him to take bigger groups on his adventure rides. As a result, the business continued to grow through the 2015 and 2016 seasons due primarily to the extra capacity during peak riding hours. The summer of 2017, however, was challenging. On July 8, 2017 all city of Kamloops parks, including the Kamloops Bike Ranch. Methot switched his operations to focus on out of town adventures to unaffected areas during the closure and resumed at the Kamloops Bike Ranch when it reopened at the end of August 2017. Operations returned to normal for the remainder of the summer 2017 season. Winter Ski Shuttle – November 2017 to March 2018 In December 2017, Methot took the first step towards expanding his business and began offering scheduled shuttle runs to the Sun Peaks ski resort located about one-hour northeast of Kamloops. He started a new Facebook© page “Mostly Mental’s Snow Shuttles” dedicated to promoting this venture and began with featuring the local manufacturing of a custom ski and snowboard rack that fit securely inside the rear doors of his shuttle van (Exhibit 4). The Sun Peaks shuttle run was also only on Friday, Saturdays and Sundays. Methot scheduled two pick up spots in Kamloops and delivered passengers to the Sun Peaks Village Day Lodge for 8:30 am. The return trip to Kamloops left Sun Peaks at 4:30 pm and arrived at the last stop in Kamloops at 5:45 pm. Bookings were made directly through Methot and the revenues generated by this trip covered all operating and fixed expenses for the period.
Summer Mountain Bike Shuttle
– April 2018 to October 2018 Methot returned his focus in the Kamloops Bike Ranch shuttle runs. In 2018, he expanded to seven days per week with the help of several employee shuttle van drivers during the season. While Methot expected the employee drivers to uphold his high standards of professionalism, many could not. Methot found that the ongoing recruiting and training employee drivers was still easier than operating all by himself every day of the week. For the 2018 summer season, the employee drivers worked an average of 5 days each week for 6 hours per day at a rate of $15 per hour which cost Methot a total of $18 per hour when including mandatory payroll taxes. The company’s shuttle van had capacity to carry a maximum of 14 passengers per trip, and usually completed an average of 27 trips each operating day. In 2018, the Kamloops Bike Ranch shuttle prices were maintained at $3 per ride or 6 rides for $15 on a punch card. Methot decided that this was necessary to rebuild ridership after the fire closure shortened 2017 season and that he expected that this would cover operating expenses including employee drivers. The daily operation was a success and resulted in the best summer results Mostly Mental Shuttles had ever achieved. The overall load factor per trip for the Kamloops Bike Ranch shuttle decreased as expected due to the increased operating hours on less popular weekdays. In addition, 2018 operations were once again reduced by some smoky days due to forest fires, but the actual forest fire activity was much further away from Kamloops in 2018. No local trail closures occurred such as those in the Summer of 2017. Methot continued with other mountain bike shuttle activities during the period. He attended special events during the period most notably the Valemont Bike Fest 2018 in June 2018. With only a single shuttle vehicle he was forced to cancel his runs at the Kamloops Bike Ranch for the entire weekend. The evening group rides started off reasonably well but lost momentum over the last half of the season. Operating expenses for the shuttle van increased as the price of gasoline was higher in 2018 and the ongoing repairs and maintenance of the vehicle have increased due to age and the expiry of the factory warranty coverage. Additional enhancements were made to the shuttle van’s tires and suspension to improve its off-road capabilities to access remote mountain bike trails and to meet the mandatory winter tire requirements enforced by Province of British Columbia enforces from October 1 to March 31.
Winter Ski Shuttle – November 2018 to March 2019
In August 2018, Methot entered into a sponsorship agreement with the Sun Peaks Resort to provide a daily shuttle service from Kamloops on a seven day per week basis during the winter ski season. He added a Sun Peaks graphic (Exhibit 5) on each side of the van as well as one from a Sun Peaks equipment rental shop for which he has 15% discount cards for his passengers. Methot modeled his after the service he provided independently during the 2018/2019 winter season and Mostly Mental Shuttles is now featured on a full page of the resort website with Methot’s contact information. (Exhibit 7) A $100 punch card (Exhibit 6) offering 6 one-way rides (3 return trips) was introduced to minimize cash handling. Cash fares are $20 per person one way. Methot expects that one third (33.333%) of his passengers will pay the cash fare and the remainder will purchase a punch card. The punch cards expire at the end of the Winter ski season. In addition, he has provided unscheduled trips for groups arriving from out of town for an extended stay at the Sun Peaks resort. These trips take him about 3 hours and he charges a flat fee of $140 per one-way trip. Methot is currently making all runs for this service as the most recent employee driver he hired quit to take another position. This has resulted in him making the trip both ways twice per day as he returns to Kamloops between the morning and afternoon runs most day.
Summer Mountain Bike Shuttles – April 2019 to October 2019 Sun Peaks As part of the Sun Peaks Resort agreement, Methot also committed to providing a daily shuttle service from Kamloops on a seven day per week basis during their summer downhill mountain biking season which runs daily from the third week of June until the first weekend in September each year. The Sun Peaks Resort is home to an extensive downhill and cross-country mountain bike trail network and hosts major competitive events as well as summer camps for youth and adults. This commitment will occupy most of the available time for the current van and trailer. The pricing model will be the same as the winter season and Methot believes that the route will be profitable enough to cover the operating costs including an employee driver and fixed loan payments for the existing shuttle van. Kamloops Bike Ranch In 2019, this shuttle service continue at seven days per week with the help of employee drivers. Each operating day averages 30 trips over an extended 8-hour operating period. Shuttle cycle time will be reduced to every 15 minutes (4 per hour) from every 12 minutes (5 per hour) in 2018 to conserve fuel and increase the number of passengers on each trip. The minimum capacity of the new smaller shuttle van is 9 passengers per trip (see next section)
For 2019, shuttle ride prices increased to $4 per ride or 6 rides for $20 on a punch card. Methot decided that this increase is necessary to due to increased operating expenses fuel, insurance, and additional. employee driver costs. It is expected that 90% of the passengers will purchase punch cards and the remainder will pay cash. Methot notes two (2) additional drivers would share the 7 days each week at the rate of $18 per hour ($15 per hour plus mandatory payroll taxes) if hired as employees in 2019. Gasoline and minor maintenance expenses are estimated to average $2.10 per round trip cycle assuming an average cost of $1.30 per litre. Fixed expenses would include insurance of $5,000 for the season, government inspections and fees of $500 and an allowance for major maintenance of $3,000 annually.
1 https://www2.gov.bc.ca/gov/content/transportation/driving-and-cycling/travellerinformation/seasonal/winter-driving/about-winter-tires.
An estimate of the expected average utilization of rate of a 9-passenger van is: Day count Weekdays % Util Weekend % Util Total April-19 18 30% 12 55% 30 40.0% May-19 17 40% 14 90% 31 62.6% June-19 16 40% 14 90% 30 63.3% July-19 18 75% 13 80% 31 77.1% August-19 16 75% 15 80% 31 77.4% September-19 16 40% 14 60% 30 49.3% October-19 18 25% 13 60% 31 39.7%(Weekend days include Friday, Saturday, Sunday and Statutory Holiday)
New Second Shuttle Van and Huckwagon Trailer
Based on the success of the summer 2018 season, Methot believes that the Kamloops Bike Ranch operation would sustain a new smaller shuttle van. With the commitment to Sun Peaks Resort he knows that he cannot be in two places at once and that by the middle of June 2019 he needs to have a second van and bike trailer for use at the Kamloops Bike Ranch to maintain consistent and reliable service. The current shuttle van is a 2015 Ford Transit T350 EL dual wheel 15 passenger high roof line, the largest and most robust model available. It currently has 115,000 kilometres in January 2019. This unit was chosen for its large seating capacity for a driver and 14 paying passengers, easy access for loading and unloading and solid towing capacity. Methot has been comfortable with the drivability and safety features of the Ford Transit as well as the fact that there are two Ford dealerships in Kamloops. Although other brands offer similar models, a single vehicle type is easier for training employee drivers. Ford Transit’s passenger wagon series has numerous configurations including engines, various roof heights and seating from 8 to 15 passengers. Methot believes a smaller configuration with a regular wheelbase, medium roof height and 10 passenger seating (a driver and 9 paying passengers). The smaller unit is capable of towing and would be better suited for use at the Kamloops Bike Ranch where the trip involved driving on paved city streets.
Methot browsed the Ford.ca2 site to the 2019 Transit page. He selected the passenger van with medium roof, regular length, 3.5 L EcoBoost® engine, 8550 Gross Vehicle Weight Rating, 3.31 Limited Slip Axle and 6-Speed automatic transmission. He selected the XLT model and added the following options: trailer towing package and brake controller, two spare keys, alarm, running boards, trailer brake control, privacy windows, Long-arm power heated mirrors, and 10-seat pewter cloth configuration. Including delivery to Kamloops at the end of May 2019, the total cost of the van was $60,591 net of a $500 manufacturer’s rebate and inclusive of $6,492 in 12% taxes (5% federal GST and 7% provincial sale tax).
https://www.ford.ca – as originally viewed in October 2018
The finance rate for this unit is 2.99% through Ford Canada Credit. Total interest would be $4,717 with payments for this unit of $1,089 per month for 5 years (60 months). Methot estimates this unit to be worth $14,000 at the end of 5 years. The Ford.ca site also allows you to research vehicles available at dealerships throughout Canada. In October 2018, Methot looked at various locations and found a new 2018 Ford Transit XLT 15 passenger T350 medium roof long wheelbase at Kentwood Ford in Edmonton, Alberta, Canada which is about 800 kilometres from Kamloops (Exhibit 8). It is a longer wheelbase unit with single rear wheels and is priced at $58,300 less $3,250 in rebates plus $1,150 for tow hitch, brake control and running boards which total of $56,000 before the 12% taxes of $6,720. This unit carries a finance rate of 6.29% and with no down payment the payments for this unit would be $1,220 per month for 5 years (60 months) with total interest of $10,550. Delivery to Kamloops would cost an additional $500 excluding taxes which would be paid directly. This unit would arrive in late January 2019. This unit is estimated to be worth $13,000 at the end of 5 years.
Methot also searched used car websites and located a used 2017 Ford Transit XLT 10 passenger T150 regular wheelbase at Strathmore Ford near Calgary, Alberta, Canada located 700 kilometres from Kamloops. This van had 21,000 kilometres and included remaining factory warranty until September 2020. The total purchase price of $38,600 included $950 for tow hitch, brake control and running boards and $6,708 in 12% taxes. Additional out of pocket expenses before taxes included delivery to Kamloops of $500 and a British Columbia out of province inspection for a used vehicle was another $200. This unit would arrive in late January 2019. The monthly payments are $979 per month with total interest of $8,392 over a four-year period at a 10% interest rate. This unit is estimated to be worth $9,000 at the end of 5 years and would arrive in late January 2019. as it would be older and have higher total kilometres. The new shuttle van would require an initial vinyl graphics lettering with the Mostly Mental logo before use. Methot uses a local Kamloops firm to do this work at a cost of $750 before taxes which would be paid out of pocket. In addition, all 5% federal GST amounts are claimable as an input tax credit and refundable to Mostly Mental Shuttles when the van is acquired. Methot also requires a Huckwagon mountain bike trailer for the shuttle van. Huckwagons3 are a custom mountain bike trailer manufacturer located in Stanwood, Washington, USA. Methot purchased his current trailer from them several years ago and ordered a medium size trailer at a cost of $9,000 Canadian after import duties plus 12% taxes. Cash from savings would be used to pay for the acquisition. He estimates that he will spend a full day travelling to pick the trailer up some time in March 2019.
The Huckwagon trailer is expected to last for 15 years and will have a salvage value of $1,500 at that time. It will also require $125 in annual maintenance over its useful life. Methot noted that the revenues from the shuttle van would not be possible without the trailer. Methot had ordered the Huckwagon mountain bike trailer but wants your input on which van he should acquire. He expects that the new shuttle van will be used for 42,500 km per year and sold after 5 seasons of use. Vehicles and trailers are Class 10 and 10.1 assets for Capital Cost Allowance purposes with a rate of 30 percent per annum. Mostly Metal Shuttles’ tax rate is 10% combined federal and provincial income taxes. Methot expects a 15% return on capital for any investments made by the company.
3 http://huckwagons.com
As an aspiring accounting student(s), you have been asked to assist Methot with the following: Remember it is January 2019 A) a formal written case response which includes any relevant data analysis and your response to the following specific questions:
1) Create a monthly contribution margin style income statement for Mostly Mental Shuttles’ business at Kamloops Bike Ranch only based on the expected 2019 summer season of operations. Provide comments on your results.
2) 2) Compute the following individual net present value of each of the three shuttle van capital expenditures (Note: all GST amounts paid are working capital recovered at acquisition): a) new 2019 Ford Transit T150 10 passenger van b) new 2018 Ford Transit T350 15 passenger van (Exhibit 8) c) used 2017 Ford Transit T150 10 passenger van (Exhibit 9)
3) 3) Review your net present value calculations for the three shuttle vans. Based on these calculations, what would your recommendation be to Methot? Why?
4) 4) Compute the following individual net present value for the new medium size Huckwagon mountain bike trailer (Note: treat GST amounts paid as working capital recovered at acquisition as they are refundable to the company). Provide comments on your results.
5) 5) You have recently learned about Balanced Scorecard and Key Performance Indicators. Detail how Methot could apply some of the concepts you have learned about for similar industries to help his growing business.
6) 6) Are there any other qualitative concerns or suggestions that you believe need to be included in any recommendation to Methot? If so, please list these item(s) and provide an explanation as to why.
7) 7) NOW FAST FORWARD to March 2022 Good news! Mostly Mental has made it through both 2020 and 2021. New owners (Exhibit 9) have taken over the company and are currently operating the 2015 van. In 2022 their focus will be on the Kamloops Bike Ranch. They have asked you to prepare a new monthly forecast based for the upcoming 2022 season. What key factors need to be considered versus 2019, 2020 and 2021 when completing this analysis? Also, is replacing the 2015 van a possibility before May 2022?