Garner Strategy Institute (GSI) presents executive-level training seminars nationally. Eastern University (EU) has approached GSI to present 40 one-week seminars during 2016. This activity level represents the maximum number of seminars that GSI is capable of presenting annually. GSI staff would present the week-long seminars in various cities throughout the United States and Canada.

Terry Garner, GSI’s president, is evaluating three financial options for the revenues from Eastern: accept a flat fee for each seminar, receive a percentage of Eastern’s profit before tax from the seminars, and form a joint venture to share costs and profits.

Estimated costs for the 2016 seminar schedule follow.

EU plans to charge $1,200 per participant for each one-week seminar. It will pay all variable marketing, site costs, and materials costs.

Required:

1. Assume that the seminars are handled as a joint venture by GSI and EU to pool costs and revenues.

a. Determine the total number of seminar participants needed to break even on the total costs for this joint venture. Show supporting computations.

b. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $247,296? Show supporting computations.

2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU. EU offers two payment options to GSI: a flat fee of $9,500 for each seminar, or a fee of 40% of EU’s profit before tax from the seminars. Compute the minimum number of participants needed for GSI to prefer the 40% fee option over the flat fee. (Round your answer up to the nearest whole number.) Show supporting computations.

3. What are the strategic and implementation issues for GSI to consider in deciding whether to enter into the joint venture? For Eastern?

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Garner Strategy Institute Eastern University Fixed costs for the year: Salaries and benefits $200,000 48,000 N/A* N/A* $210,000 N/A* $210,000 Facilities Travel and hotel 70,000 $318,000 Other Total fixed costs Variable costs per participant: Supplies and materials Marketing $47 18 Other site costs 35 *Eastern's fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will be incurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit before tax for the seminars. Garner Strategy Institute Eastern University Fixed costs for the year: Salaries and benefits $200,000 48,000 N/A* N/A* $210,000 N/A* $210,000 Facilities Travel and hotel 70,000 $318,000 Other Total fixed costs Variable costs per participant: Supplies and materials Marketing $47 18 Other site costs 35 *Eastern's fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will be incurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit before tax for the seminars.

Answer rating: 100% (QA)

Step 1 of 3 A 1 a A total of 480 seminar participants is needed for the joint venture to br... View the full answer