Question

Learnfast Executive Education runs two-day courses at various sites in the country. It
charges each participant $500 for a course. Learnfast’s costs are as follows:
i. cost to add an additional participant to a scheduled course: $100
ii. cost to add an additional course at any given existing site: $4,000
iii. monthly operating cost for an additional site for courses: $10,000
The cost of (iii) excludes the costs of (i) & (ii); the cost of (ii) excludes the cost of (i).
Required. Assuming no taxes, answer the following:
a. If Learnfast adds one more course to a given site, how many participants must be
registered for the course to break-even?
b. If Learnfast adds a new site, how many courses per month need to be offered to
break-even? Assume courses will have 15 participants each.
c. Continuing to assume that courses will have 15 participants each, how many
courses must be run at the new site for it to generate monthly NI of $10,000?
Assume there are no taxes.
d. What is the Degree of Operating Leverage at the new site assuming it runs the
number of courses in your answer to part (c)? Assume there are no taxes.

Answer 1

Cost Analysis

i Sales per participant = $500

ii Addditional cost per participant = variable cost per participant = $100

iii Additional cost per additional course = variable cost per course = $4000

iv Operating cost for new site = Fixed cost for new site = $10000

Answer (A)

Total additional cost to add a new course at existing site = 4000 + (100X)

and revenue per new course will be = 500 X

where x is number of participant

for BEP equation will be

4000 + 100X = 500 X  

400X = 4000

X = 10 participants need to BEP for a new course

Answer (B)

Sales Revenue = 500 x 15 = $7500

Fixed Cost = 10000

Variable Cost = 4000 + (100 x 15) = 4000 + 1500 = $5500

Contribution per course = Sales - VC = 7500 - 5500 =$2000

BEP per course = Fixed cost / Contribution = 10000 / 2000 = 5 Course of 15 participants

Answer 3

Course to earn desired profit = Desired Profit / Contribution per course + Course for BEP

Course to earn desired profit = 10000 / 2000 + 5 Course

Course to earn desired profit = 5 +5 10 Course

Answer 4

we have to calculate operating profit at two sales level using data in answer c, we assume level as 10 cousre and 20 course

	10 Course	20 Course
Sales	75000	150000
Variable cost	55000	110000
Fixed Cost	10000	10000
operating profit	10000	30000

Degree of operating leverage (DOL) = % change in OP / % Change in Sales

DOL = 200 / 100 = 2