2. Award: 12 out of 12.00 points

 

Alameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation,
which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost
characteristics.

Tuition $ 800 per student

Variable costs (tiles, supplies, and so on) 480 per student
Fixed costs (advertising, salaries, and so on) 160,000 per year

Required:
a. What enrollment will enable Alameda Tile to break even?
b. How many students will enable Alameda Tile to make an operating profit of $80,000 for the year?
c. Assume that the projected enrollment for the year is 800 students for each of the following (considered independently):
1. What will be the operating profit (for 800 students)?
2. What would be the operating profit if the tuition per student (that is, sales price) decreased by 10 percent? Increased by 20 percent?
3. What would be the operating profit if variable costs per student decreased by 10 percent? Increased by 20 percent?
4. Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 10 percent higher
than projected. What would be the operating profit for the year?

Complete this question by entering your answers in the tabs below.

Req A Req B Req C1 Req C2 Req C3 Req C4

What enrollment will enable Alameda Tile to break even?

Break-even point 500  students

 Req A Req B 

References

Worksheet Difficulty: 2 Medium Learning Objective: 03-01 Use cost-volume-profit (CVP)

analysis to analyze decisions.

Alameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation,
which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost
characteristics.

Tuition $ 800 per student

Variable costs (tiles, supplies, and so on) 480 per student
Fixed costs (advertising, salaries, and so on) 160,000 per year

Required:
a. What enrollment will enable Alameda Tile to break even?
b. How many students will enable Alameda Tile to make an operating profit of $80,000 for the year?
c. Assume that the projected enrollment for the year is 800 students for each of the following (considered independently):
1. What will be the operating profit (for 800 students)?
2. What would be the operating profit if the tuition per student (that is, sales price) decreased by 10 percent? Increased by 20 percent?
3. What would be the operating profit if variable costs per student decreased by 10 percent? Increased by 20 percent?
4. Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 10 percent higher
than projected. What would be the operating profit for the year?

Complete this question by entering your answers in the tabs below.

Req A Req B Req C1 Req C2 Req C3 Req C4

What enrollment will enable Alameda Tile to break even?

Break-even point 500 students

 Req A Req B 

 
Explanation:

a.
Profit = (P − V) X − F
Profit = ($800 − $480) X − $160,000
0 = ($800 − $480) X − $160,000
X = $160,000 ÷ $320
= 500 students

b.
Profit = ($800 − $480) X − $160,000
$80,000 = ($800 − $480) X − $160,000
X = $240,000 ÷ $320
= 750 students

c.
1.
Profit = ($800 − $480) × 800 students − $160,000
= $96,000

2.
10% price decrease. Now P = $720
Profit = ($720 − $480) × 800 students − $160,000
= $32,000 Profit decreases by $64,000
20% price increase. Now P = $960
Profit = ($960 − $480) × 800 students − $160,000
= $224,000 Profit increases by $128,000

3.
10% variable cost decrease. Now V = $432
Profit = ($800 − $432) × 800 students − $160,000
= $134,400 Profit increases by $38,400
20% variable cost increase. Now V = $576
Profit = ($800 − $576) × 800 students − $160,000
= $19,200 Profit decreases by $76,800

4.
10% fixed cost decrease, 10% variable cost increase
Now F = $144,000 and V = $528
Profit = ($800 − $528) × 800 students − $144,000
= $73,600 Profit decreases by $22,400