David Hutchinson is an internationally known Canadian professor specializing in consumer marketing. In 2012, Hutchinson and United Kingdom Business School (UKBS) agreed to conduct a one-day seminar at UKBS for marketing executives. Each executive would pay $350 to attend. The non–speaker-related fixed costs for UKBS conducting the seminar would be:

Advertising in magazines.........$5,200

Mailing of brochures............ 2,500

Administrative labour at UKBS..... 3,700

Charge for UKBS lecture auditorium .... 1,800

The variable costs to UKBS for each participant attending the seminar would be

Food service.............. $38

Printed materials and binders ......... 37

The dean at UKBS initially offered Hutchinson its regular compensation package of (a) business-class airfare and accommodation ($3,800 maximum) and (b) a $2,750 lecture fee.

Hutchinson views the $2,750 lecture fee as providing him no upside potential (that is, no sharing in the potential additional operating income that arises if the seminar is highly attended).

He suggests instead that he receive 50% of the operating income to UKBS (if positive) from the one-day seminar and no other payments. The dean of UKBS quickly agrees to Hutchinson’s proposal after confirming that Hutchinson is willing to pay his own airfare and accommodation and deliver the seminar irrespective of the number of executives signed up to attend.

REQUIRED

1. What is UKBS’s breakeven point (in number of executives attending) if

a. Hutchinson accepts the regular compensation package of $3,800 expenses and a $2,750 lecture fee.

b. Hutchinson receives 50% of the operating income to UKBS (if positive) from the one-day seminar and no other payments.

Comment on the results for (a) and (b).

2. Hutchinson gave the one-day seminar at UKBS in 2009 (60 attended), 2010 (75 attended), and 2011 (120 attended). How much was Hutchinson paid by UKBS for the one-day seminar under the 50% of UKBS’s operating income compensation plan in (a) 2009, (b) 2010, and (c) 2011?

3. After the 2011 seminar, the dean at UKBS suggested to Hutchinson that the 50%–50% profit-sharing plan was resulting in Hutchinson getting excessive compensation and that a more equitable arrangement to UKBS be used in 2012. How should Hutchinson respond to this suggestion?