Question

You run a school in Florida. Fixed monthly cost is $5,520.00 for rent and utilities, $5,697.00 is spent in salaries and $1,394.00 in insurance. Also every student adds up to $105.00 per month in stationary, food etc. You charge $660.00 per month from every student now.You are considering moving the school to another neighborhood where the rent and utilities will increase to $11,953.00, salaries to $6,852.00 and insurance to $2,218.00 per month. Variable cost per student will increase up to $192.00 per month. However you can charge $1,076.00 per student. At what point will you be indifferent between your current mode of operation and the new option

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

Actual costs:

Fixed monthly cost is $5,520.00

Salaries= $5,697.00

Insurance= $1,394.00.

Every student adds up to $105.00

Price= $660.00

Moving the school:

Fixed costs= $11,953.00

Salaries= $6,852.00

Insurance= $2,218.00.

Variable cost per student= $192.00.

Price= $1,076.00 per student.

We need to find at what number of students it is indifferent to stay or move.

Option A= Contribution margin*Q- total fixed costs

Option A= (660-105)*Q- (5520+5697+1394)

Option A= 555*Q - 12611

Option B= (1076-192)*Q - (11953+6852+2218)

Option B= 884*Q - 21023

Now, we isolate Q:

555*Q - 12611= 884*Q - 21023

8412=329*Q

25.568389=Q

Q=26