Question

Greystone College is a provider of correspondence courses in Business Studies. Each course was sold for £45.00 last year and a total of 20,000 were sold. The fixed overheads for the year were £80,000

The variable cost of producing a course last year was:

Direct material	15.00
Direct labour	18.00
Other direct costs (mainly postage)	1.80
Variable overheads	1.20

During the year, the costs are expected to increase as follows:

Direct material	20.00
Direct labour	16.67
Other direct costs	67.00
Variable overheads	25.00
Fixed overheads	5.00

If price rises are less than 17.5%, demand will not be affected. If price rises exceed 17.5%, sales will fall by 2% for each 1% in excess of 17.5%.

Required: Find the selling price of the study courses if the number of courses sold and the annual profits are to remain the same.

Answer 1