Question:
CVP Analysis-Sensitivity Analysis (spreadsheet recommended)
Alameda Tile sells products to many people remodeling their homes and thinks that they could profitably offer courses on tile installation, which might also increase the demand for their products. The basic installation course has the following (tentative) price and cost characteristics:
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Tuition
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$ 400 per student
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Variable costs
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(tiles, supplies, and so on)
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240 per student
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Fixed costs (advertising,
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salaries, and so on)
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80,000 per year
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Required
a. What enrollment will enable Alameda Tile to break even?
b. How many students will enable Alameda Tile to make an operating profit t of $40,000 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 t (for 800 students)?
2. What would be the operating profit t if the tuition per student (that is, sales price) decreased by 10 percent? Increased by 20 percent?
3. What would be the operating profit t 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 t for the year?