Question

3-42 CVP Analysis USE THE VALUE BELOW IN SOLVING THE PROBLEM Alameda Tile sells products to many people remodeling their homes and thinks that they could profitably offer courses on tile installation, which might also increase the demand for their products. The basic installation course has the following (tentative) price and cost characteristics: Tuition Variable Cost Fixed Cost Alameda Tile 800 per student 480 per student 160,000 per year $ 800 per student Tuition....... Variable costs (tiles, supplies, and so on)..... Fixed costs (advertising. salaries, and so on).......... 480 per student 160,000 per year Amount Students 600 Sales Variable Cost Contribution Margin Tuition Var Cost Worst 720 432 Base 800 480 Best 960 576 Fixed Cost Net Operating Income Required a. What enrollment will enable Alameda Tile to break even? How many students will enable Alameda Tile to make an operating profit of $80,000 for the year? Assume that the projected enrollment for the year is 800 students for each of the following (considered independently): 1. What will be the operating profit (for 800 students)?

Answer 1

(a)	What enrollment will enable Alameda Tile to break even?
Profit		=	(P – V) X –F
Profit		=	($800 – $480) X – $160,000
0		=	($800 – $480) X – $160,000
X		=	$160,000 ÷ $320
		=	500 students

(b)	How many students will enable Alameda Tile to make an operating profit of $80,000 for the year?
Profit	=	($800 – $480) X – $8160,000
$80000	=	($800 – $480) X – $160,000
X	=	$240,000 ÷ $320
	=	750 students

(c)	Assume that the projected enrollment for the year is 800 students for each of the following (considered independently):

1.	What will be the operating profit (for 800 students)?
Profit		=	($800 – $480) × 800 students – $160,000
		=	$96,000