Question

Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 80% learning rate. For this contract, it appears that the effort will be substantial, running 300 hours for the first session. Your firm has an average cost of labor of $80/hour and the overhead is expected to run a fixed $1200 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 10%, what will be the Total Price, the Per Session Price, and at what session will you break even?

Answer the following four questions:

1. What is the Total Price? This is what you would charge the customer so that you can have your profit markup of 10% over all of your costs. To calculate this, first figure out your cost per each session, add them up, and then add your profit.
2. What is the Per Session Price? This is the revenue that the customer pays you each time you complete a session. It is calculated by dividing the Total Price by the number of sessions.
3. What is the Break Even Point? At the beginning, your cost per session is more than your revenue per session. As each session is completed, however, your costs for the session declines so that eventually your cumulative revenue exceeds the cumulative cost. The break-even point is the session at which, for the first time, your revenue exceeds your cost.
4. Assume you win the contract and your customer likes the training so much, she orders a ninth course at the same price as the first eight. What will your profit be on the 9^th course?

Answer 1

Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 85% learning rate. For this contract, it appears that the effort will be substantial, running 50 hours for the first session. Your firm bills at the rate of $100/hour and the overhead is expected to run a fixed $600 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 20%, what will be the Total Price, the Per Session Price, and at what session will you break even?

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Answer :

Activity : To Designs training materials for computer training classes

Recently received a request to bid on a contract to produce a complete set of training manuals for an 8-session class.

Past fig.

85% learning rate. ( For this contract, it appears that the effort will be substantial )

Running 50 hours for the first session.

Firm bills at the rate of $100/hour

Overhead = fixed $600 per session

The customer will pay a flat fixed rate per session (Per Session Price.)

Profit markup is 20%,

Total Price (Per Session Price ) = ? the

Break even = ?

There are 8 sessions .

Learning curve : 85 %

For 1 st session = 50 hours

As per learning curve , next 7 sessions can be at the rate of 85 % .

So sessions hours will be = 50 * 85 %

= 42.50 hours

Total cost = 1 + 2 + 3 +------+8 sessions +over head for 8 sessions

= (50 * 100) +(42.50*100) *7 + (8 * 600 )

= $ 39550

Profit = 20 % on total cost

= 20 % * 39550

= $ 7910

Total Revenue = $ 47460

Approximate Price per sessions = $ 47460 / 8

= $ 5932.5

Point for BE = 37550 / 5932.5

= 6.66 session

At 6.66 session revenue will cross the cost.