Janice Colangelo heads the Training Centre of the large HR Consulting firm EMT Consulting. The firm has three major departments: Recruitment, Training and Career Services.
The Training Centre provides management training for employees of various businesses. Recruitment provides recruitment services and Career Services assists personnel with resumes and offers advice on career planning.
The Training Centre employs 2 administrative assistants, 1 training officer and Janice, the manager on a permanent basis. Part-time trainers are hired on an as-needed basis. Part-time trainers are paid $1500 per workshop.
During 2008 the Training Centre conduction 200 workshops with 20 individuals in each. The charge per individual was $300. This is the maximum number of workshops that can be held in a year.
Following are the results for 2008.
Training Revenue (200 x 20 x $300) $1,200,000
Less Expenses:
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)
Required:
1. a. Classify each of the costs as variable or fixed. (5 marks)
b. What would be the effect on the profit of the whole company, if the Training Centre was closed at the beginning of the new year? (5 marks)
Note :If the Training Centre is closed, one administrative staff will be retained to work in the Career Services department.
2. Given the allocated costs at 10% of revenue, calculate the number of workshops that must be offered to break-even. (10 marks)
3. Re-calculate #2 above, assuming Janice can re-negotiate the part-time trainers’ cost to $1000 per workshop. (10 marks)
4. With the increase in globalization and companies outsourcing many jobs, Janice thinks that, in addition to management training, the Training Centre should offer “second career” training. Janice feels that this will add 100 more workshops with an average enrollment of 15 participants at a cost of $200 each. The rate per participant is based on the fact that a non-profit organization has offered its facilities, free of charge, to run the workshops.
What effect will this have on the Training Centre profit?
Note: The trainers will be paid $1000 per workshop. The only other additional cost will be manuals at $15 each.
