Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clientsâ€™ offices on the clientsâ€™ equipment. The only major expense WTS incurs is instructor salaries; it pays instructors $5,000 per course taught. WTS recently agreed to offer a course of instruction to the employees of Chambers Incorporated at a price of $400 per student. Chambers estimated that 20 students would attend the course.
Base your answer on the preceding information.
Part 1: Required
a) Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?
b) Determine the profit, assuming that 20 students attend the course.
c) Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?
d) Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment de-creases to 18 students). What is the percentage change in profitability?
e) Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in profitability. Use the term that identifies this phenomenon.