Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients' offices on the clients' equipment. The only major expense WTS incurs is instructor salaries; it pays instructors $5,000 per course taught. WTS recently agreed to offer a course of instruction to the employees of Chambers Incorporated at a price of $400 per student. Chambers estimated that 20 students would attend the course.
Base your answer on the preceding information.
Part 1: Required
a) Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?
b) Determine the profit, assuming that 20 students attend the course.
c) Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?
d) Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment de-creases to 18 students). What is the percentage change in profitability?
e) Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in profitability. Use the term that identifies this phenomenon.