Sam heads the Training Centre of large HR Consulting firm EMT Consulting. Firm has three main departments: Recruitment, Training and Career Services.
Training Centre offers management training for employees of different businesses. Recruitment offers recruitment services and Career Services assists personnel with resumes and provides advice on career planning.
Training Centre employs two administrative assistants, 1 training officer and Sam, the manager on the permanent basis. Part-time trainers are hired on the as-needed basis. Part-time trainers are paid $1500 per workshop.
In 2008 Training Centre conduction 200 workshops with 20 individuals in each. The charge per individual was $300. This is the maximum number of workshops which can be held in the year.
Following are the results for 2008.
Training Revenue (200 x 20 x $300) $1,200,000
Trainer costs (200 x 2 x $1500) 600,000
Manager’s Salary 120,000
Training officer 90,000
Administrative staff 80,000
Utilities/phone costs 20,000
Manuals for participants 120,000
Advertising costs 125,000
Postage & other miscellaneous costs 9,450
Total expenses $ 1,164,450
Income from operations $35,550
Common Allocated costs (10% of revenue) 120,000
Net Income or (loss) $(84,450)
1. a. Categorize each of the costs as variable or fixed.
b. What would be the effect on profit of entire company, if Training Centre was closed at the beginning of New Year?
2. Given the allocated costs at 10% of revenue, compute the number of workshops that should be offered to break-even.
3. Re-compute 2 above, supposing Sam can re-negotiate the part-time trainers’ cost to $1000 per workshop.
4. With an increase in globalization and companies outsourcing many jobs, Sam thinks that, additionally to management training, Training Centre must offer “second career” training. Sam feels that this will add 100 more workshops with the average enrolment of 15 participants at the cost of $200 each. The rate per participant is based on fact that a non-profit organization has offered its facilities, free of charge, to run the workshops.
What effect will this have on Training Centre profit?