Question

Franklin Training Services (FTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense FTS incurs is instructor salaries; it pays instructors $5,300 per course taught. FTS recently agreed to offer a course of instruction to the employees of Novak Incorporated at a price of $490 per student. Novak estimated that 20 students would attend the course.

Base your answers on the preceding information.

Required

a.Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?

b.Determine the profit, assuming that 20 students attend the course.

c.Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?

d.Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). What is the percentage change in profitability?

Answer 1

a.)	Relative to the number of students in a single course, the cost of instruction is a fixed cost because Instructor fee is per course irrespective of number of students in a single course.

b.)	Revenue from course	9,800	=20*490
	Less: Instructor fee	5,300
	Profit	4,500
	Profitability %	45.92%	=4500/9800
c.)	Revenue from course	10,780	=22*490
	Less: Instructor fee	5,300
	Profit	5,480
	Profitability %	50.83%	=5480/10780
	% Change in profitability	4.91%	=50.83%-45.92%
	( Increase )
d.)	Revenue from course	8,820	=18*490
	Less: Instructor fee	5,300
	Profit	3,520
	Profitability %	39.91%	=3520/8820
	% Change in profitability	6.01%	=45.92%-39.91%
	(Decrease)