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Question 2 Summit Ultimate School ("SUS) is a new private education institution set up to provide alternative pathways for Polytechnic and Junior College students to achieve their personal and professional aspirations. The Director of Education (DoE) is also keen on offering classes to help students pass business professional qualifications including those in Data Analytics, Accounting, and Banking and Finance. SUS also offers business training to help improve productivity and performance of organisations and their employees. SUS has two business divisions: (1) Professional and Executive Development (PED); and (2) Diploma and Degree Programmes (Academic). The PED division offers short courses which range from a few hours to three months whereas the Academic division offers diploma and degree programmes (undergraduate and postgraduate degrees) ranging from six months to three years in duration. SUS has recruited office administrative and management staff who are working at the leased premises where the fitted-out classrooms are located. Fixed assets have been purchased and annual fixed costs totalling $5.3 million have been committed. The market for private education and training is very competitive. Being a new player, SUS will need to price at or below market rates in the beginning years unless it can convince the market it offers a premium product. Its pricing strategies will also be affected by the types of courses offered, for example, diploma, degree, professional examination preparation. Furthermore, diploma and degree courses may require strategic partners to offer accreditation and certification whereas professional examination preparation may be driven by the passing rates achieved. SUS' ability to deliver quality services is one of the critical factors for its revenue and business sustainability. However, quality instructors are not readily available at affordable rates. Encouraging quality students to enrol for SUS's courses will also be a challenge. To ensure quality engagement, SUS' class size range from a minimum of 24 to a maximum of 40. Maintaining this range for class size also helps SUS plan classroom design as facilities are shared across different programmes. SUS expects relatively high annual fixed costs, particularly in the first year, with investments into the computer system, library, furniture and fittings, and marketing. In addition, SUS pays a referral fee of 5% of the course fee to any person who successfully introduces a new student. Monthly accounts will be prepared to monitor progress as well as control cash flow. The company adopts a wealth maximisation strategy - maximising revenue at the lowest possible costs. As an example, for an estimated enrolment of 120 students, three classes will be opened. However, SUS assumes some costs are unavoidable. For instance, a 5% referral fee is budgeted even though not all students are referred. Instructor requirements are forecasted based on the number of sessions delivered, which is determined by expected student enrolment numbers and types of programmes. Instructors teaching diploma (D), undergraduate (UG), and postgraduate (PG) courses will be paid $90, $110, and $130 per hour of face-to-face contact, respectively. Due to various operational differences, such as venue and instructor fee structure for conducting PED courses, budgeting is done separately for each division. The PED and the diploma and degree (Academic) divisions have committed fixed expenses and assets purchased for 2021 as follows: Division Professional and Executive Development (PED) Academic $ 800,000 4,500,000 The breakdown of the $4.5 million assets purchased and fixed expenses commitment of the Academic division for 2021 is as follows: Assets purchased and fixed expenses commitment $ Furniture and Fittings (installed in the beginning of February 2021) 810,000 Rental for 2021 (February to December 2021) 1,100,000 Computers and Software (installed in the beginning of February 2021) 1,530,000 Other operating costs 400,000 Estimated administrative staff costs for 2021 660,000 4,500,000 Asset class Useful Life Scrap value Furniture and Fittings 60 months Zero Computers and Software 36 months Zero SUS depreciates all assets using the straight-line method. In the first year, SUS allocates depreciation proportionally based on date of installation. For the first year of operation, SUS's projected enrolments are 75, 130, and 100 students for the D, UG, and PG programmes respectively. The courses are organised in trimesters of four months each with the first trimester (T1) starting in January, the second trimester (T2) in May, and the third trimester (T3) in September in each year. The modules for each programme are equally spaced out across each trimester. Financial Forecast for 2021 (based on a maximum class size of 40 students) Course type Number of students per intake in 2021 Number of modules for the programme Number of modules per trimester Length of instruction per week per module (hours) Number of weeks of instruction per module (weeks) Miscellaneous costs per student per trimester ($) Average length of the programme (trimesters) Average fee for a programme ($) Average cost per instructor hour ($) D UG PG 75 130 100 27 12 3 4 3 3 13 14 13 $100 $120 $150 2 9 3 $6,000 $27,000 $18,000 $90 $110 $130 Required: (a) Assuming that SUS starts classes in Trimester 2 (T2) of 2021, compute the profit/(loss) before tax for the year ending 31 December 2021. (20 marks) SUS wants to improve its financial performance in 2021. It is considering increasing the maximum class size from 40 to 50 students. To maintain the quality of the education provided, the increase in class size will be compensated by increasing the number of weeks of instruction per module for each programme by an extra one week. (b) Determine the impact of this change on the profit / (loss) for the year ending 31 December 2021. (10 marks) (c) SUS is considering introducing an online certificate in accounting in 2022 in its PED division. It has the following estimates for the programme and the investment at most can last two years. Fixed and variable expenses over two years Equipment and software Purchase of online content General marketing costs for the programme Specific marketing cost per student Cost of services provided per student Examination grading per student Revenue Course fee per student $300,000 $500,000 $40,000 5% of the course fee $120 $50 $860 (i) Calculate the expected profit from this programme if 2,000 students enrol and complete this programme within two years. (6 marks) (ii) Determine the number of students required to enrol in this programme if SUS wants to make a profit of $120,000 from this investment. (14 marks) Question 2 Summit Ultimate School ("SUS) is a new private education institution set up to provide alternative pathways for Polytechnic and Junior College students to achieve their personal and professional aspirations. The Director of Education (DoE) is also keen on offering classes to help students pass business professional qualifications including those in Data Analytics, Accounting, and Banking and Finance. SUS also offers business training to help improve productivity and performance of organisations and their employees. SUS has two business divisions: (1) Professional and Executive Development (PED); and (2) Diploma and Degree Programmes (Academic). The PED division offers short courses which range from a few hours to three months whereas the Academic division offers diploma and degree programmes (undergraduate and postgraduate degrees) ranging from six months to three years in duration. SUS has recruited office administrative and management staff who are working at the leased premises where the fitted-out classrooms are located. Fixed assets have been purchased and annual fixed costs totalling $5.3 million have been committed. The market for private education and training is very competitive. Being a new player, SUS will need to price at or below market rates in the beginning years unless it can convince the market it offers a premium product. Its pricing strategies will also be affected by the types of courses offered, for example, diploma, degree, professional examination preparation. Furthermore, diploma and degree courses may require strategic partners to offer accreditation and certification whereas professional examination preparation may be driven by the passing rates achieved. SUS' ability to deliver quality services is one of the critical factors for its revenue and business sustainability. However, quality instructors are not readily available at affordable rates. Encouraging quality students to enrol for SUS's courses will also be a challenge. To ensure quality engagement, SUS' class size range from a minimum of 24 to a maximum of 40. Maintaining this range for class size also helps SUS plan classroom design as facilities are shared across different programmes. SUS expects relatively high annual fixed costs, particularly in the first year, with investments into the computer system, library, furniture and fittings, and marketing. In addition, SUS pays a referral fee of 5% of the course fee to any person who successfully introduces a new student. Monthly accounts will be prepared to monitor progress as well as control cash flow. The company adopts a wealth maximisation strategy - maximising revenue at the lowest possible costs. As an example, for an estimated enrolment of 120 students, three classes will be opened. However, SUS assumes some costs are unavoidable. For instance, a 5% referral fee is budgeted even though not all students are referred. Instructor requirements are forecasted based on the number of sessions delivered, which is determined by expected student enrolment numbers and types of programmes. Instructors teaching diploma (D), undergraduate (UG), and postgraduate (PG) courses will be paid $90, $110, and $130 per hour of face-to-face contact, respectively. Due to various operational differences, such as venue and instructor fee structure for conducting PED courses, budgeting is done separately for each division. The PED and the diploma and degree (Academic) divisions have committed fixed expenses and assets purchased for 2021 as follows: Division Professional and Executive Development (PED) Academic $ 800,000 4,500,000 The breakdown of the $4.5 million assets purchased and fixed expenses commitment of the Academic division for 2021 is as follows: Assets purchased and fixed expenses commitment $ Furniture and Fittings (installed in the beginning of February 2021) 810,000 Rental for 2021 (February to December 2021) 1,100,000 Computers and Software (installed in the beginning of February 2021) 1,530,000 Other operating costs 400,000 Estimated administrative staff costs for 2021 660,000 4,500,000 Asset class Useful Life Scrap value Furniture and Fittings 60 months Zero Computers and Software 36 months Zero SUS depreciates all assets using the straight-line method. In the first year, SUS allocates depreciation proportionally based on date of installation. For the first year of operation, SUS's projected enrolments are 75, 130, and 100 students for the D, UG, and PG programmes respectively. The courses are organised in trimesters of four months each with the first trimester (T1) starting in January, the second trimester (T2) in May, and the third trimester (T3) in September in each year. The modules for each programme are equally spaced out across each trimester. Financial Forecast for 2021 (based on a maximum class size of 40 students) Course type Number of students per intake in 2021 Number of modules for the programme Number of modules per trimester Length of instruction per week per module (hours) Number of weeks of instruction per module (weeks) Miscellaneous costs per student per trimester ($) Average length of the programme (trimesters) Average fee for a programme ($) Average cost per instructor hour ($) D UG PG 75 130 100 27 12 3 4 3 3 13 14 13 $100 $120 $150 2 9 3 $6,000 $27,000 $18,000 $90 $110 $130 Required: (a) Assuming that SUS starts classes in Trimester 2 (T2) of 2021, compute the profit/(loss) before tax for the year ending 31 December 2021. (20 marks) SUS wants to improve its financial performance in 2021. It is considering increasing the maximum class size from 40 to 50 students. To maintain the quality of the education provided, the increase in class size will be compensated by increasing the number of weeks of instruction per module for each programme by an extra one week. (b) Determine the impact of this change on the profit / (loss) for the year ending 31 December 2021. (10 marks) (c) SUS is considering introducing an online certificate in accounting in 2022 in its PED division. It has the following estimates for the programme and the investment at most can last two years. Fixed and variable expenses over two years Equipment and software Purchase of online content General marketing costs for the programme Specific marketing cost per student Cost of services provided per student Examination grading per student Revenue Course fee per student $300,000 $500,000 $40,000 5% of the course fee $120 $50 $860 (i) Calculate the expected profit from this programme if 2,000 students enrol and complete this programme within two years. (6 marks) (ii) Determine the number of students required to enrol in this programme if SUS wants to make a profit of $120,000 from this investment. (14 marks)

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