Break Even Analysis

  Please separate your answers by the parts of the question. NOTE: 250+ word minimum is waived for this assignment. ***For some practice on this assignment, you could visit your textbook’s online site and do one of the Chapter 13 exercises (this is from an earlier edition of the textbook, so the Chapter numbers do not align)! Understanding pricing theory is all fine and good. But you also have to be able to "crank the numbers". IMPORTANT NOTE: for the following case, assume that any change in costs, once made, continues from that point and then throughout the rest of the problem unless otherwise noted. Calculate the breakeven point for a private, upscale K-8 (Kindergarten through 8th grade) academy with the cost structure listed below. Assume that tuition (i.e., the price) is $5,600 per student. Note: be sure to round up to the nearest whole number -- we generally don't have 2/3rds of a student! ***Important hint: make sure you carefully think through which of the costs listed below will fall into Fixed Costs and which will fall into Variable Costs. You may want to re-read the Lecture to refresh your memory on this one. administrator salaries $500,000 faculty salaries $900,000 coaches salaries $60,000 medical,...benefits $600,000 insurance $80,000 mortgage/debt $100,000 materials cost for each student $600 Breakeven point (number of enrolled students needed) for this Academy, given this cost structure is: ____________students. (Be sure to show an outline of your calculations.) Now assume that because enrollment has tapered off, your Board of Trustees has approved a $100,000 marketing budget to develop promotional materials and to hire a part-time recruiter. (Remember to include this cost from now on.) (Again, show an outline of your calculations.) Your new B/E point is _________ students. In other words, to cover this increase in promotion, you’ll need another ______ students in order to breakeven. Faculty salaries have been frozen for the past 4 years. They now indicate that they will strike if they are not given an immediate 2% pay increase. You believe that this should also be extended to the coaching staff, to head-off potential problems in that area. (Again, remember to include this cost from now on.) (Also again, show an outline of your calculations) Rounding up to the nearest whole number, your new B/E point is _________ students. Enrollment turns out to be 472 students. Therefore your academy has made profits of $__________. To help defray the new marketing costs, you decide to raise your tuition from $5,600 to $6,000. Rounding up to the nearest whole number, your new B/E point is ______ students. (Show an outline of your calculations). Please discuss the following: what would you say if the academy chose to use an odd pricing strategy, pricing tuition at $5,999? This question isn’t asking you to do any math, just to comment on the pros and cons of choosing a price point of $5,999 vs. $6,000 for the tuition. Information for questions 8-10: Your enrollment of 472 students (from part "5" above) drops 1 percentage point more than your tuition was raised (e.g., if tuition is raised 5%, enrollment drops 6%). Regrettably, school tuition appears to be far more elastic than expected. Based on the information given to you in part “6” above, tuition was raised _____%. That means that your enrollment has declined _____%. Rounding up to the nearest whole number, enrollment is now ________ students.