Question

The instructor has offered to teach the course for a percentage of tuition fees. Specifically, she wants $210 per person attending the class. Assume that the tuition fee remains at $490 per student.
Required:

a. Is the cost of instruction a fixed or a variable cost?
b. Determine the profit, assuming that 20 students take the course.
c. Determine the profit, assuming a 10 percent increase in enrollment i.e., enrollment increases to 22 students). What is the percentage change in profitability?
d. Determine the profit, assuming a 10 percent decrease in enrollment (ie., enrollment decreases to 18 students). What is the percentage change in profitability?
e. Explain why a 10 percent change in enrollment produces a proportional 10 percent change in profitability

Answer 1

Solution and Explanation:

(a) Variable Cost ; because the instructor will be paid as per the number of students that would be taught by him.

(b) $5600;

Enrollment fees per student = $210 , Instructor fees per student = $490

Profit per student = $280

Profit from 20 students = 20 multiply $280 i.e $5600

(c) $5600 , 10% ;

Profit from 22 students = 22 multiply with $280 i.e. $6160

$\% change in profit =(\ 6160 \text { minus } \ 5600) / \ 5600$ = 10%

(d) $7,200 , 10% ;

Profit from 18 students = 18 multiply with $280 i.e. $5040

$percent change in profit =(\ 5040 \text { minus } \ 5600) / \ 5600$  = -10%

(e) The only cost charged against the revenue is instructor cost, which is $300 per student. It is a variable cost and changes proportionately will the number of students resulting in proportional increase / decrease in profit with the change in number of students.