Question

You run a school in Florida. Fixed monthly cost is $5,585.00 for rent and utilities, $5,548.00 is spent in salaries and $1,039.00 in insurance. Also every student adds up to $105.00 per month in stationary, food etc. You charge $621.00 per month from every student now.

You are considering moving the school to another neighborhood where the rent and utilities will increase to $10,976.00, salaries to $6,160.00 and insurance to $2,389.00 per month. Variable cost per student will increase up to $162.00 per month. However you can charge $1,075.00 per student. At what point will you be indifferent between your current mode of operation and the new option?

Answer 1

Location 1				Location 1			Incremental
Fixed Cost:				Fixed Cost:
Rent & Utilities	5585			Rent & Utilities	10976
Salaries	5548			Salaries	6160
Insurance	1039			Insurance	2389
Total Fixed Cost	12172			Total Fixed Cost	19525	Total Fixed Cost	7353
Variable Cost	105			Variable Cost	162
Revenue per Student	621			Revenue per Student	1075
Contribution per student	516	(621-105)		Contribution per student	913	Contribution per student	397
						Breakeven indifference	19	rounded
So if there is 19 student, then there is no difference between current and suggested mode of operation.							(7353/397)