Sensitivity analysis. Joan\'s Beauty College is considering introducing a new na
ID: 2731540 • Letter: S
Question
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: Required: a. What enrollment enables Joan's Beauty College to break even?. b. How many students will enable Joan's Beauty College to make an operating profit of $30, 000 for the year? c. Assume that the projected enrollment for the year is 600 students for each of the following situations: What will be the operating profit for 600 students? What would be the operating profit if the tuition per student (that is, sales price) decreased by 10 percent? What would be the operating profit if variable costs per student decreased by 20 percent? 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 for the year?Explanation / Answer
a. Joan Beauty College needs 200 student of Enrollment to break even is as follows:
b Operating Profit = Sales - Variable Cost - Fixed Cost
Operating Profit = Contribution - Fixed Cost
Lets assume no of student to be x to make opearing profit of $30,000
$30,000 = $300x - $60,000
$30,000 + $60,000 = $300x
$300x = $90,000
x = 300
So 300 student is requiured to earn operating profit of $30,000.
c. Projected Enrollment for 600 student
1) Operating Profit = Contribution - Fixed Cost
= 600*$300 - $60,000
=$180,000 - $60,000
= $120,000
2) Revised Tution fees = $320 *90% = $288
Operating Profit = Contribution - Fixed Cost
= 600*$288 - $60,000
=$172,800 - $60,000
= $112,800
3) Revised Variable Cost = $20 *80% = $16
Operating Profit = Sales - Variable Cost - Fixed Cost
=( $320 - $16) *600 - $60,000
= $122,400
4) Revised Fixed Cost = $60,000* 90% = $54,000
Revised Variable Cost = $20 *120% = $24
Operating Profit = Sales - Variable Cost - Fixed Cost
=( $320 - $24) *600 - $54,000
= $123,600
$ Tution Price per student 320 Less: Variable Cost Per Student 20 Contribution per Student 300 Fixed Cost per year 60,000 Break even No Student 200 student (Fixed Cost/ contribution per student)Related Questions
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