Research Paper – CASE 4-2 (Mayfield Training)

Posted: August 26th, 2021

Research Paper – CASE 4-2 (Mayfield Training)

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Research Paper – CASE 4-2 (Mayfield Training)

Question 1 (a)

If Mayfield management considers shutting down the training center, the effect on the total company profit, according to the 2017 report, is that the group profit will increase. Unlike the loss of US $ 44,750.00 in 2016, shutting down lowers the total costs of production by reducing rental, advertisement and training costs as summarized below;

New Total Costs = Total Costs – Training Costs-Rental Costs – Advertising Costs

The 2017 costs are reduced to $ 1,280,750.00. Hence, profit increases to $ 3,615,250.00 (See Calculations on Excel)

Question 2 (b)

Based on the current room configuration and approach to the allocation of central charges (20% of revenues), for Marie’s Group to break-even at least 1, 130 classes should be offered per year (See Excel Calculations). Break-even point refers to the margin of safety, which compares revenue amount, or units that must be sold to cover the fixed and variable costs(Cafferky & Wentworth, 2014; Christine, 2015). Therefore, the group is safe to meet its expenses onceit attains the above number of classes.

Question 3 (c)

When costs incurred on each trainer is reduced to $3,500, the Marie’s Group break-even number of classes reduces to 977 (See Excel Calculations). At the reduced level of costs incurred per trainer, the operating expenses are reduced. The cross-examination of this strategy’s effect on profit gives positive results. Hence, the Marie Group should seriously pursue this option.

Question 4 (d)

The introduction of new software with an anticipated increase in enrollment classes by 30 implies there will be additional revenues for the Group. Extra classes and instructors increase variable costs for the Group. However, the calculation of the net profit reveals that the company profit will increase by $ 52,800.00 (See Excel Calculations).

References

Cafferky, M. & Wentworth, J. (2014). Breakeven analysis: the definitive guide to cost-volume-profit analysis. New York, New York (222 East 46th Street, New York, NY 10017: Business Expert Press.

Christine, D. (2015). Management Accounting Break-Even Point Approach. Saarbrücken: LAP LAMBERT Academic Publishing.