1.For a manufacturing company, selling price for an item is $592.00 per Unit, Variable cost is $308.00 per Unit, rent is $7,682.00 per month and insurance is $3000 per month. What is the contribution margin?
2.You run a school in Florida. Fixed monthly cost is $5,355.00 for rent and utilities, $6,008.00 is spent in salaries and $1,374.00 in insurance. Also every student adds up to $92.00 per month in stationary, food etc. You charge $689.00 per month from every student now.
You are considering moving the school to another neighborhood where the rent and utilities will increase to $10,785.00, salaries to $6,980.00 and insurance to $2,337.00 per month. Variable cost per student will increase up to $187.00 per month. However you can charge $1,149.00 per student. At what point will you be indifferent between your current mode of operation and the new option?
Please, show processes to solve the questions
1 | ||||
Sale | $592.00 | |||
Less: Variable cost | $308.00 | |||
Contribution margin | $284.00 | |||
Note: Rent and insurance are fixed cost which is irrelevant for computing contribution margin | ||||
2 | ||||
No of students at indifferent point be Y | ||||
Current option | New option | |||
Charge from student | $689.00 | $1,149.00 | ||
Less: Varaible cost (stationary, food etc) | $92.00 | $187.00 | ||
$597.00 | $962.00 | |||
Fixed cost | ||||
Rent and utilities | $5,355.00 | $10,785.00 | ||
Salaries | $6,008.00 | $6,980.00 | ||
Insurance | $1,374.00 | $2,337.00 | ||
Total fixed cost | $12,737.00 | $20,102.00 | ||
Now at the indifferent point | ||||
$597Y - $12,737 = $962Y - $20,102 | ||||
So Y = 20.17 i.e. 20 |
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