Question: Unit Costs and Total Costs You are a CPA who belongs to a downtown business club. Annual dues are $150. You use the club solely for lunches, which cost $9 each. You have not used the club much in recent years, and you are wondering whether to continue your membership.
1. You are confronted with a variable-cost plus a fixed-cost behavior pattern. Plot each on a graph, where the vertical axis is total cost and the horizontal axis is annual volume in number of lunches. Also plot a third graph that combines the previous two graphs.
2. What is the cost per lunch if you pay for your own lunch once a year? Twelve times a year? Two hundred times a year?
3. Suppose the average price of lunches elsewhere is $10. (a) How many lunches must you have at the luncheon club so that the total costs of the lunches would be the same, regardless of where you ate for that number of lunches? (b) Suppose you ate 200 lunches a year at the club. How much would you save in relation to the total costs of eating elsewhere? 5-38 Advertising Expenditures and Nonprofit Organizations Many colleges and universities have been extensively advertising their services. For example, a university in Philadelphia used a biplane to pull a sign promoting its evening program, and one in Mississippi designed bumper stickers and slogans as well as innovative programs. Suppose Hilliard College charges a comprehensive annual fee of $14,800 for tuition, room, and board, and it has capacity for 2,000 students. The admissions department predicts enrollment of 1,700 students for 20X1. Costs per student for the 20X1 academic year are as follows:
The assistant director of admissions has proposed a 2-month advertising campaign using radio and television advertisements, together with an extensive direct mailing of brochures.
1. Suppose the advertising campaign will cost $1.41 million. What is the minimum number of additional students the campaign must attract to make the campaign break even?
2. Suppose the admissions department predicts that the campaign will attract 335 additional students. What is the most Hilliard should pay for the campaign and still break even?
3. Suppose a 3-month (instead of 2-month) campaign will attract 440 instead of 335 additional students. What is the most Hilliard should pay for the 1-month extension of the campaign and still break even?