Question

Effects of fixed and variable cost behavior on the risk and rewards of business opportunities Canton Club and Tobin Club are competing health and recreation clubs in Orlando. They both offer tennis training clinics to adults. Canton pays its coaches $4,800 per season. Tobin pays its coaches $120 per student enrolled in the clinic per season. Both clubs charge a tuition fee of $200 per season. Required a. Prepare income statements for Canton and Tobin, assuming that 40 students per season attend each clinic. b. The ambitious new director of Canton Club tries to increase his market share by reducing the club's tuition per student to $112 per clinic. Prepare an income statement for Canton, assuming that the club attracts all of Tobin's customers and therefore is able to enroll 80 students in its clinics. c. Independent of Requirement b, Tobin Club tries to lure Canton's students by lowering its price to $112 per student. Prepare an income statement for Tobin, assuming that the club succeeds in enrolling 80 students in its clinics. d. Explain why the strategy described in Requirement b produced a profit while the same strategy described in Requirement c produced a loss. e. Prepare an income statement for Canton Club and Tobin Club, assuming that 20 students attend a clinic at the original $200 tuition price. f. It is always better to have fixed rather than variable cost. Explain why this statement is false.