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CVP fixed variable costs and shifts in income

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Cooper Training Services (CTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients' offices 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 instruction to the employees of Akers Incorporated at a price of $340 per student. Akers estimated that 20 students would attend the course.

A.Relative to the number of students in a single course, is the cost of instruction a fixed or variable cost?
b.b. Determine the profit, assuming that 20 students attend the course.
c. Determine the profit, assuming a 20 percent increase in enrollment (i.e., enrollment increases to 24 students).
What is the percentage change in profitability?
d. Determine the profit, assuming a 20 percent decrease in enrollment (i.e., enrollment decreases to 16 students).
What is the percentage change in profitability?

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

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Solution Summary

A sentence or two explains each response. A mini-income statement shows the computations for each scenario.

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A.Relative to the number of students in a single course, is the cost of instruction a fixed or variable cost?

It is fixed. More students or fewer students do not change the instructor cost.

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

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