Exercise 1: (5 marks)

Richmond baking School teaches students how to become a good cake designers. The following relates to the income and costs analysis for the school for 2017

Fees charged

Senior cake design Class - $75 per class per student

Costs

Resources - $200 per senior students.

Teacher - $35,000 per annum (there are 2 teachers in the school )

Class Consumables (such as whiteboard markers, worksheets) - $30 per student

Administrative Expenses - $40,000 per annum

Finance Costs - $8,000 per annum

There are 40 lessons in a school year for both senior and junior levels.

Suppose there are 50 senior students enrolled. Each class is made up of 8 students and school fees are not refundable.

REQUIRED: ( the Answers should be computerized )

1-The school plan for 2017 is to accept both senior and junior students next year.

2-Prepare a CVP income statement using the contribution margin format in 2017. (1.5 marks)

3-How many students are needed in order to achieve breakeven in 2017. (1 marks)

4-How many classes need to be taught in order to achieve breakeven in 2017. (0.5 marks)

5-Suppose the business wants to achieve $25,000 profit at the end of the year, calculate the number of classes is needed to achieve this in 2017. (1 marks)

6-Calculate the margin of safety (in number of class).There are 50 students enrolled for next years course. (0.5 marks)

7-Explain what is margin of safety (0.5 marks)