Mayfield Software, Customer Training Case

Marie Stefano is the group director of customer training for Mayfield Software. In this capacity, she runs

a center in Kirkland, Washington, that provides training to employees of companies that use Mayfield's

inventory control, customer management, and accounting software products. Her group employs a

receptionist and an office manager$/$bookkeeper$,$ and she has arrangements with several part$-$time

trainers who are hired on an as$-$needed basis. $($They are all retired employees of Mayfield Software.$)$

Trainers are paid $$4,000$ per day$-$long class. Mayfield is a decentralized company, and Marie is given

considerable authority to advertise and conduct classes as she sees fit.

Report of Operating Results, $2020$

Revenue

Less operating costs:

Trainer costs

Director salary

Receptionist

Office manager

Utilities, phone, etc.

Lease expense related to computers, servers, etc.

Rent

Operating manuals for participants

Postage, envelopes, paper, etc.

Advertising

Total operating costs:

Profit before central charges

Central charges

Group profit

$$3,400,000$

$180,000$

$60,000$

$80,000$

$38,000$

$400,000$

$100,000$

$510,000$

$12,750$

$160,000$

$$6,120,000$

$4,940,750$

$1,179,250$

$1,224,000$

$($$ $44,750)$

During $2020,$ the group conducted $850$ day$-$long classes with an average enrollment of $20$ students

paying $$360.$ The group's Report on Operating Results for $2020$ is detailed above.

Additional Facts

$1.$ All equipment is leased on a yearly basis. Costs include $100$ workstations for students $($one

workstation for every seat in each of the four $25-$student classrooms$),$ plus servers and other

miscellaneous equipment. While average class enrollment is $20$ students, some classes are full

$(25$ students$),$ and classes are cancelled if enrollment is fewer than $15$ students. Classes typically

are held Monday through Friday, although some classes are held on Saturdays and Sundays.

$2.$ Rent relates to the training center in Kirkland, which is not part of Mayfield's main campus

located in Bellevue, Washington.

$3.$ Advertising costs relate to the cost of monthly advertisements in trade journals such as Tech

Worker and Inventory Management. These ads provide information on upcoming training

sessions.

$4.$ Operating manuals are provided to each participant.

$5.$ Postage, envelopes, and paper costs relate primarily to billing companies for employees who

participate in classes. This cost varies with the number of participants.

$6.$ Central charges are assigned to each group at Mayfield Software based on actual sales. The

allocation relates to costs incurred for the benefit of the company as a whole, including salaries

of the CEO and company president, legal costs, costs related to the company's central office

building, brand advertising, and so on$.$ The charge is $20$ percent of revenue.

Required

a$.$ As indicated, the training group suffered a loss in $2020.$ Thus, unbeknownst to Marie, Mayfield

management is considering shutting down the training center. Given the results of $2020,$ what

would be the effect on Mayfield Software's total company profit in $2021$ if the training center is

closed at the start of the year?

b$.$ Given the current room configuration and approach to allocation of central charges $(20$ percent

of revenue$),$ calculate the number of classes that must be offered $($with an average enrollment of

$20$ students$)$ for Marie's group to break even on the Report of Operating Results.

c$.$ Recalculate your answer to part b assuming Marie can lower the amount paid to instructors to

$$3,500$ per class. Should Marie seriously pursue this option?

d$.$ Mayfield Software is releasing version $4\mathrm{.}0$ of Customer Track in $2021.$ Marie believes that this will

create a demand for $30$ additional day$-$long classes with an average enrollment of $20$ students

per class. What effect will this have on "group profit" on Marie's Report of Operating Results?

Assume that instructors will be paid $$4,000$ per class.