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Cooper Training Service: Cost of Instruction and Profits

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Cooper Training Service (CTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers a course on the clients' equipment. The only major expense CTS incurs is instructor salaries; it pays instructors $3,600 per course taught. CTS recently agreed to offer a course of instructors to the employees of Akers Incorporated at a price of $340 per student. Akers estimated that 20 students would attend the course.

Part 1:
a) Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?

b) Determine the profit, assuming that 20 students attend the course.

c) Determine the profit, assuming a 20 percent increase in enrollment, enrollment increases to 24 students). What is the percentage change in profitability?

d) Determine the profit, assuming a 20 percent decrease in enrollment, (enrollment decreases to 16 students). What is the percentage change in profitability?

e) Explain why a 20 percent shift in enrollment produces more than 20 percent shift in profitability. Use the term that identifies this phenomenon.

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Solution Summary

Computations are provided in an attached Excel file (click on cells to see computations) so that you have a template for other future work of a similar nature. This is assignment is a classic case of what happens to profits when fixed or variable costs change. The term that captures the change in profits is given as a change in sales and the formula for it is provided.

Solution Preview

Please see the response which is attached as an Excel file.

Notice that profit change is done as a percent change (like ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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