You run a school in Florida. Fixed monthly cost is $5,585.00 for rent and utilit

Question

You run a school in Florida. Fixed monthly cost is $5,585.00 for rent and utilities, $5,548.00 is spent in salaries and $1,039.00 in insurance. Also every student adds up to $105.00 per month in stationary, food etc. You charge $621.00 per month from every student now.

You are considering moving the school to another neighborhood where the rent and utilities will increase to $10,976.00, salaries to $6,160.00 and insurance to $2,389.00 per month. Variable cost per student will increase up to $162.00 per month. However you can charge $1,075.00 per student. At what point will you be indifferent between your current mode of operation and the new option?

Explanation / Answer

Location 1 Location 1 Incremental Fixed Cost: Fixed Cost: Rent & Utilities 5585 Rent & Utilities 10976 Salaries 5548 Salaries 6160 Insurance 1039 Insurance 2389 Total Fixed Cost 12172 Total Fixed Cost 19525 Total Fixed Cost 7353 Variable Cost 105 Variable Cost 162 Revenue per Student 621 Revenue per Student 1075 Contribution per student 516 (621-105) Contribution per student 913 Contribution per student 397 Breakeven indifference                     19 rounded So if there is 19 student, then there is no difference between current and suggested mode of operation. (7353/397) Note: I have tried my best for correct solution and work , still you need any further help, please ask in comment and don’t forget to rate positively.

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