Reference no: EM132780904

Problem 1 - Alameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation, which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost characteristics.

Tuition $420 per student

Variable costs (tiles, supplies, and so on) 240 per student

Fixed costs (advertising, salaries, and so on) 99,000 per year

Required -

a. What enrollment will enable Alameda Tile to break even?

b. How many students will enable Alameda Tile to make an operating profit of $30,600 for the year?

c. Assume that the projected enrollment for the year is 800 students for each of the following (considered independently):

1. What will be the operating profit (for 800 students)?

2. What would be the operating profit if the tuition per student (that is, sales price) decreased by 10 percent? Increased by 22 percent?

3. What would be the operating profit if variable costs per student decreased by 14 percent? Increased by 15 percent?

4. Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 5 percent higher than projected. What would be the operating profit for the year?

Problem 2 - Assume that Painless Dental Clinics, Inc., offers three basic dental services. The following are its prices and costs.

Cleaning: $300 price per unit, $170 cost per unit, units sold per year 8000

Filling : 580 price per unit, $560 variable cost per unit, $1700 units sold per unit

Capping: $1425 , $770 variable cost per unit, 300 units sold per unit

Variable costs include the labor costs of the dental hygienists and dentists. Fixed costs of $490,000 per year include building and equipment costs, marketing costs, and the costs of administration. Painless Dental Clinics is subject to a 20 percent tax rate on income.

A cleaning "unit" is a routine teeth cleaning that takes about 45 minutes. A filling "unit" is the work done to fill one or more cavities in one session. A capping "unit" is the work done to put a crown on one tooth. If more than one tooth is crowned in a session, then the clinic counts one unit per tooth (e.g., putting crowns on two teeth counts as two units).

a. Given this information, how much will Painless Dental Clinics, Inc., earn each year after taxes?

b. Assuming the given sales mix is the same at the break-even point, at what sales revenue does Painless Dental Clinics, Inc., break even?

c. Assuming the given sales mix, at what sales revenue will the company earn $158,000 per year after taxes?

d-1. Painless Dental Clinics, Inc., is considering becoming more specialized in cleanings and fillings. What would be the company's revenues per year if the number of cleanings increased to 11,000 per year, the number of fillings increased to 1,800 per year, while the number of cappings dropped to zero? With this change in product mix, the company would increase its fixed costs to $540,000 per year. What would be the effect of this change in product mix on the clinic's earnings after taxes per year?

d-2. If the clinic's managers seek to maximize the clinic's after-tax earnings, would this change be a good idea?