The yoga studio offers 38 classes per week. The average class size is 6 students
ID: 2445243 • Letter: T
Question
The yoga studio offers 38 classes per week. The average class size is 6 students and tuition is $18 per class. The studio operates 50 weeks per year. The variable cost is $25 per class which is the fee paid to the instructor for running the class. Tuition, variable and fixed costs are expected to remain at the current amounts for the coming year.
Prepare the following calculations and responses to the below questions. For ratios, please round to 4 decimal places (example XX.XX%). For all dollar calculations, round to whole dollars. For all unit calculations please round UP any decimal amount.
1. Compute the company's current contribution margin per class and as a ratio.
2. How many classes need to be offered a year in order to break-even (assuming an average of six students per class)? Prepare a contribution margin income statement at the break-even point to ensure the accuracy of your figures. Is this break-even point a reasonable one? Why or why not?
3. What is their margin of safety in sales dollars and as a ratio?
4. If the instructor wishes to earn $150,000 next year, how many classes need to be offered in order to break-even (assuming an average of six students per class)? Prepare a contribution margin income statement at this amount to prove the accuracy of your figures. Is this number of classes reasonable? Why or why not?
5. If student attendance decreased by 20% next year, what would the impact be to net income? What recommendation would you have for the studio? If student attendance increased by 20% next year, what would be the impact to net income? Assume that the number of classes stays the same.
6. Thinking about this type of industry, what recommendations do you have to increase business at no or low cost?
Bliss YogaContribution Margin Income Statement
For the Year Ended December 31, 2015 Tuition revenue $205,200 Variable costs 47,500 Contribution margin 157,700 Fixed costs 31,340 Net Income $126,360
Explanation / Answer
The yoga studio offers 38 classes per week. The average class size is 6 students
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