Ryans Music provides individual music lessons in the homes of clients. The following data are provided with respect to the last 12 months of activity ending 30 June 2013.
Lesson selling price* ..................................$ 45
Lesson labour cost ..................................... 30
Annual fixed costs .....................................18 000
Lesson sheet music costs .............................. 3
Required:
a. Assuming selling prices and costs remain the same as for 2013 calculate the number of lessons that are required to be sold in 2014 to break even.
b. Draw a graph to show the cost volume profit relationships for Ryans Music.
c. If 4000 music lessons were 'conducted' in 2014, what profit would be achieved?
d. For 2014, Ryans expects the lesson labour cost to increase by $2 but, because of local competitive forces, Ryans does not wish to increase the lesson price. With some careful management, Ryan shopes to reduce annual fixed costs to $15 000. Calculate the number of music lessons that would need to be performed in order to match the profit calculated in (c) above.