Question

CVP—sensitivity analysis. Joan’s Beauty College is considering introducing a new nail design seminar to run on an annual basis with the following price and cost characteristics:

Tuition	$405.00 per Student
Variable Costs (polish, supplies, etc.)	$185.00 per Student
Fixed Costs (advertising, instructor’s salary, insurance, etc.)	$29,480 per Year

Required: Please answer 3 and 4.

2a. What enrollment enables Joan’s Beauty College to break even?

29,480/(405-185)= 134 enrollment

2b. How many students will enable Joan’s Beauty College to make an operating profit of $35,750 for the year?

(29480+35750)/(405-185)=297 enrollments

2c. Assume that the projected enrollment for the year is 350 students for each of the following situations:

(1) What will be the operating profit for 350 students?

((405-185)x350)-29,480= $47520

(2) What would be the operating profit and changecompared to the results from c(1)if the tuition per student (that is, sales price) (show amount change & %)

(i).decreased by 10 percent?

47520-(405 x 350 x .1)= 33,345

                                                (47520-33345)/47520= 29.8%

Operating profit- $33,345   Operating profit change in amount= $14,175

(ii). Increased by 20 percent?

                                                47520+(405x350x.2)= $75,870

Operating profit increase= (28350)/47520= 59.7%

Operating profit= $75,870

OP change in amount= $28,350

(3) What would be the operating profit and changecompared to the results from c(1)if variable costs per student (show amount change & %)

(i) increased by 10 percent?

(ii) Decreased by 20 percent?

(4) Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 20 percent higher than projected. What would be the operating profit(loss)for the year?

Answer 1

Part-3
Statement Showing Revised Operating Income
	Without Change	Increased by 10%	Decreased by 20%
N. of Student	350	350	350
Revneue @$405	$141,750	$141,750	$141,750
Less: Variable cost	$64,750	$71,225	$51,800
	(185*350)	(185*1.10*350)	(185*0.80*350)
Contribution	$77,000	$70,525	$89,950
Less: Fixed Cost	$29,480	$29,480	$29,480
Net Operating Profit	$47,520	$41,045	$60,470
Net Operating Profit change by		-$6,475	$12,950
		(41045-47520)	(60470-47520)
Change in %		-13.63%	27.25%
		(6475/47520)	(12950/47520)

Part-4
Statement Showing Revised Operating Income
	Without Change	With Chages
N. of Student	350	350
Revneue @$405	$141,750	$141,750
Less: Variable cost	$64,750	$77,700
	(185*350)	(185*1.20*350)
Contribution	$77,000	$64,050
Less: Fixed Cost	$29,480	$26,532
		(29480*0.90)
Net Operating Profit	$47,520	$37,518
Net Operating Profit change by		-$10,002
		(41045-47520)
Change in %		-21.05%
		(10002/47520)