a) The effect on Mayfield Software’s total company profit would be a decrease of $765450. This is due to the fact that the central charges come from the company’s overhead costs and are distributed amongst the satellite facilities based on each sites’ revenue. If Mayfield Software closes the Kirkland facility, it will have to eat the central charges that it would normally distribute to the facility (765450), since the overhead cost would not be reduced by closing the facility.
b) Break Even Point:
Profit=SP(x) – VC(x) – TFC
TFC: Director Salary (165000) + Receptionist (51000) + Office Manager (75000) + Utilities (32000) + Lease expense (360000) + Rent (96000) + Advertising (157000) = 936000
VC = Trainer Cost (3750/class) + Postage etc.. (13.5/class) + Operating Manuals (540/class) + Central Charges (945/class) = 5248.5
SP = 18 x 350 = 6300
0 = 6300(x) – 5248.5(x) – 936000
x = 890 classes
c) Changing the VC to 4498.5 to reflect the 750 reduction in trainer costs, the Break even point would be:
0 = 6300(x) – 4498.5(x) – 93600
x = 520 classes
Yes, Marie should seriously pursue this option. She would decrease her break even point by 370 classes just by lowering the trainer’s salary by $750. The alternative for the trainers would be zero income if the facility cloases.
d) Using the SP, VC, and TFC from part b, we can plug in 840 for x and solve for profit.
Profit = 6300(840) – 5248.5(840) – 936000
Profit = (52740)
Marie’s group profit would be a negative 52740.