Your firm designs training materials for computer training classes, and you have

Question

Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 85% learning rate. For this contract, it appears that the effort will be substantial, running 100 hours for the first session. Your firm bills at the rate of $100/hour and the overhead is expected to run a fixed $600 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 15%, what will be the Total Price, the Per Session Price, and at what session will you break even? Answer the following three questions: a. What is the Total Price? This is what you would charge the customer so that you can have your profit markup of 15% over all of your costs. To calculate this, first figure out your cost per each session, add them up, and then add your profit. b. What is the Per Session Price? This is the revenue that the customer pays you each time you complete a session. It is calculated by dividing the Total Price by the number of sessions. c. What is the Break Even Point? At the beginning, your cost per session is more than your revenue per session. Gradually, your cumulative revenue matches the cumulative cost, and eventually exceeds it so that you can end up with the desired profit. The break-even point is the session at which, for the first time, your revenue exceeds your cost.

Explanation / Answer

Running Hours: 100 Hours
Bill Rate: $100/ per hour
Overhead: $600 per session
Profit Markup: 15%
a) Cost per Session: 100*100 + 600 = $10600

Total Price = 10600*(1+15%) * 8 = $97,520

b) Per session price = $97520/8 = $12,190

c) Breakeven:

Cost < Revenue

The company is in profit from 1st session itself.

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