Kids Sports Consulting Pty Ltd is a company set up by sports and recreation management students to gain experience in running their own business. It had the following contribution margin income statement data for the year ended 2019.

Required Answer each of the following independent situations.

(a) Explain how an understanding of CVP analysis would improve the performance of the manager of a sports and recreation firm like Kids Sports Consulting Pty Ltd.

(b) As a student in a sports and recreation management degree you are required to act as the manager of Kids Sports Consulting Pty Ltd. In setting your salary at $20 000, calculate the increase in service fees to maintain the company’s profit after tax equal to at least 25% of total service fees.

(c) You employ a friend who is studying for a marketing degree. She believes that by increasing variable expenses by $100 per client and fixed advertising expenses by $3000 the company will increase the number of clients by 20 per year. Would your marketing friend’s suggestions improve profitability after tax? Explain why the suggestion will, or will not, increase the company’s profit.

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Sporting event fees (96 events) $48 000 Variable expenses 19 200 Contribution margin Fixed expenses Profit before tax Tax (at 30%) Profit after tax 28 800 16320 12 480 3744 $ 8736