Question

The executive education (EE) unit at the Business School of Central State University offers both open-enrollment (anyone can sign up) and custom (designed for a specific client) executive education programs. CSU has just received an inquiry from a prospective client about its prices for leadership seminars. The prospective client wants bids for three alternative activity levels: (1) one seminar with 20 participants, (2) four seminars with 20 participants each (80 participants total), or (3) eight seminars with 140 participants in total. EE's cost analyst has provided the following differential cost estimates. $ 900 110 Setup costs for the entire job Materials costs per participant (brochures, handouts, coffee, lunch, etc.) Differential direct labor costs: One seminar Four seminars Eight seminars $1,300 3,300 9,200 In addition to the preceding differential costs, EE allocates fixed costs to jobs on a direct-labor-cost basis, at a rate of 70 percent of direct labor costs (excluding setup costs). For example, if direct labor costs are $100, EE would also charge the job $70 for fixed costs. EE charges clients for its costs plus 30 percent. For the purpose of charging customers, costs equal the setup costs plus materials costs plus differential labor costs plus allocated fixed costs. EE has enough excess capacity to handle this job with ease.

Answer 1

Part A

	One seminar	Four seminars	Eight seminars
Number of participants	20	80	140
Total costs	$5310	$15310	$31940
Fee	1593	4593	9582
Bid	$6903	$19903	$41522

	One seminar	Four seminars	Eight seminars
Number of participants	20	80	140
Setup costs	900	900	900
Materials cost (@ $110 per participant)	2200	8800	15400
Differential labor costs	1300	3300	9200
Allocated fixed costs (@ 70% of direct labor costs)	910	2310	6440
Total costs	5310	15310	31940
Fee (@ 30% of total costs)	1593	4593	9582
Bid (Total cost plus Fee)	6903	19903	41522

Part B

	One seminar	Four seminars	Eight seminars
Differential costs:
Setup costs	900	900	900
Materials cost	2200	8800	15400
Differential labor costs	1300	3300	9200
Allocated fixed costs
Total differential costs	4400	13000	25500
Differential bid	6903	19903	41522
Contribution to profit.	$2503	$6903	$16022

Part C 1

	One seminar	Four seminars	Eight seminars
Bid	6903	19903	33218
Incremental costs:
Setup costs	900	900	900
Materials cost	2200	8800	15400
Differential labor costs	1300	3300	9200
Allocated fixed costs
Total 1ncremental costs	4400	13000	25500
Contribution to profit.	$2503	$6903	$7718

41522*80% = 33218

Part C-2

Disagree

(because the contribution to profit is greatest for eight seminars.)