***For some practice on this assignment, you could visit yourtextbook’s online site and do one of the Chapter 13 exercises (thisis from an earlier edition of the textbook, so the Chapter numbersdo not align)!
Understanding pricing theory is all fine and good. But youalso have to be able to "crank the numbers". IMPORTANT NOTE: forthe following case, assume that any change in costs, once made,continues from that point and then throughout the rest of theproblem unless otherwise noted.
Calculate the breakeven point for a private, upscale K-8(Kindergarten through 8th grade) academy with the cost structurelisted below. Assume that tuition (i.e., the price) is $5,500 perstudent. Note: be sure to round up to the nearest whole number --we generally don't have 2/3rds of a student!
***Important hint #1: be sure to round up to the nearest wholenumber -- we generally don't have 2/3rds of a student!
***Important hint #2: make sure you carefully think throughwhich of the costs listed below will fall into Fixed Costs andwhich will fall into Variable Costs. You may want to re-read theLecture to refresh your memory on this one.
administrator salaries $550,000
faculty salaries $950,000
coaches salaries $60,000
medical,...benefits $650,000
insurance $100,000
mortgage/debt $150,000
materials cost for each student $500
Breakeven point (number of enrolled students needed) for thisAcademy, given this cost structure is: ____________students. (Besure to show an outline of your calculations.)
Now assume that because enrollment has tapered off, your Boardof Trustees has approved a $200,000 marketing budget to developpromotional materials and to hire a part-time recruiter. (Rememberto include this cost from now on.) (Again, show an outline of yourcalculations.)
Your new B/E point is _________ students.
In other words, to cover this increase in promotion, you’llneed another ______ students in order to breakeven.
Faculty salaries have been frozen for the past 4 years. Theynow indicate that they will strike if they are not given animmediate 3% pay increase. You believe that this should also beextended to the coaching staff, to head-off potential problems inthat area. (Again, remember to include this cost from now on.)(Also again, show an outline of your calculations)
Rounding up to the nearest whole number, your new B/E point is_________ students.
Enrollment turns out to be 539 students. Therefore youracademy has made profits of $__________.
To help defray the new marketing costs, you decide to raiseyour tuition from $5,500 to $6,000. Rounding up to the nearestwhole number, your new B/E point is ______ students. (Show anoutline of your calculations).
Please discuss the following: what would you say if theacademy chose to use an odd pricing strategy, pricing tuition at$5,999? This question isn’t asking you to do any math, just tocomment on the pros and cons of choosing a price point of $5,999vs. $6,000 for the tuition.
Information for questions 8-10:
Your enrollment of 539 students (from part "5" above) drops 1percentage point more than your tuition was raised (e.g., iftuition is raised 5%, enrollment drops 6%). Regrettably, schooltuition appears to be far more elastic than expected.
Based on the information given to you in part “6” above,tuition was raised _____%.
That means that your enrollment has declined _____%.
Rounding up to the nearest whole number, enrollment is now________ students.
