Question

Kenton and Denton Universities offer executive training courses to corporate clients. Kenton pays its instructors $5,000 per course taught. Denton pays its instructors $250 per student enrolled in the class. Both universities charge executives a $450 tuition fee per course attended.

Required

Prepare income statements for Kenton and Denton, assuming that 20 students attend a course.

Kenton University embarks on a strategy to entice students from Denton University by lowering its tuition to $240 per course. Prepare an income statement for Kenton assuming that the university is successful and enrolls 40 students in its course.

Denton University embarks on a strategy to entice students from Kenton University by lowering its tuition to $240 per course. Prepare an income statement for Denton, assuming that the university is successful and enrolls 40 students in its course.

Problem 11-28

a.      N = Number of units to break-even point

Sales − Variable cost − Fixed cost = Desired Profit

          (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Desired Profit

(Contribution margin per unit x N) = Fixed cost + Desired Profit

N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

N = ($               + $           ) ÷ [$       - ($     + $       )] =          Units

          Break-even point dollars =        Units x $        selling price per unit = $

b.      N = Number of units to break-even point

          N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

          N = ($            + $            ) ÷ [$        – ($       + $      )]

          N =          Units

          Break-even point dollars =    Units x $            selling price per unit = $

	c.

Contribution Margin Income Statement
Sales ($         x           Units)	$
Variable costs ($    x              )
Contribution margin	$
Fixed costs
Net Income	$

Answer 1

Kenton's Contribution Margin Income Statement:

Sales ($240 x 40 units)	$                  9,600
Variable Costs ($0 x 40 units)	$                         -
Contribution Margin	$                  9,600
Fixed Costs	$                  5,000
Net Income	$                  4,600

Denton's Contribution Margin Income Statement:

Sales ($240 x 40 units)	$                  9,600
Variable Costs ($250 x 40 units)	$                10,000
Contribution Margin	$                    -400
Fixed Costs	$                         -
Net Income	$                    -400

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