Question

Tutor, Inc. (TI) provides instructional services to its customers. TI charges $330 per student. The Company expects to serve 1,150 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $125,000. If the estimated number of students increase by 20%, net income will increase by: (Round your final answer to the nearest percent.)

Answer 1

Answer:

Net income will increase by 30%.

Explanation:

Projected total fixed cost = $125,000

Fee per student = $330

Percentage increase in the old number of students = 20%

Old number of students = 1,150

New number of students = Old number of students * (100% + Percentage increase in the old number of students) = 1,150 * (100% + 20%) = 1,380

Old revenue = Fee per student * Old number of students = $330 * 1,150 = $379,500

New revenue = Fee per student * New number of students = $330 * 1,380 = $455,400

Old net income = Old revenue - Projected total fixed cost = $379,500 - $125,000 = $254,500

New net income = New revenue - Projected total fixed cost = $455,400 - $125,000 = $330,400

Therefore, we have:

Percentage increase in net income = ((New net income – Old net income) / Old net income) * 100 = (($330,400 - $254,500) / $254,500) * 100 = 30%

Therefore, net income will increase by 30%.