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Breakeven workshops

During 2008, the Training Department of Firm XYZ conducted 200 workshops with 20 individuals in each. The charge per individual was $300. This is the maximum number of workshops that can be held in a year. The firm employs 2 Admin. Assistants, 1 Training Officer, and 1 Manager on a permanent basis. 2 Part-time trainers are hired as needed. Part-time trainers are paid $1,500 each per workshop.

Following are the results for 2008:

Training Department Revenue (200 x 20 x $300)= $1,200,000
Less expenses:
Trainer costs (200 x 2 x $1,500)= $600,000
Manuals for participants = $120,000
Postage % Misc costs = $9,450
Manager's salary = $120,000
Administrative Staff = $80,000
Training Officer = $90,000
Advertising costs = $125,000
Utilities/phone costs = $20,000

Total expenses: $1,164,450

Income from operations:(1,200,000 - 1,164,450)= $35,550

Common Allocated costs at 10% of revenue = $120,000

Net income or (loss): ($35,550 - $120,000) = ($84,450)

The question is: After determining the fixed and variable costs, given the allocated commom costs at 10% revenue, calculate the number of workshops needed to break even.

My question is: Are the common costs that are allocated at 10% of revenue considered to be fixed or variable in this case? (No other info is provided). I'll get different break-even levels depending on whether they are considered fixed or variable.

Please advise.

Thank you.

Solution Preview

A variable cost is one which changes with activity, while the fixed cost remains constant. In this case the common costs are allocated as 10% of revenue. This implies that the allocated common costs would change as the revenue changes and so are dependant on ...

Solution Summary

The solution explains how to calculate the number of workshops to be held for breakeven