Effects of fixed and variable cost behavior on the risk and rewards of business opportunities East and West Universities offer executive training courses to corporate clients. East pays its instructors $6,000 per course taught. West pays its instructors $300 per student enrolled in the class. Both universities charge executives a $360 tuition fee per course attended.

Required

a. Prepare income statements for East and West, assuming that 20 students attend a course.

b. East University embarks on a strategy to entice students from West University by lowering its tuition to $200 per course. Prepare an income statement for East assuming that the university is successful and enrolls 40 students in its course.

c. West University embarks on a strategy to entice students from East University by lowering its tuition to $200 per course. Prepare an income statement for West, assuming that the university is successful and enrolls 40 students in its course.

d. Explain why the strategy described in Requirement b produced a profit but the same strategy described in Requirement c produced a loss.

e. Prepare income statements for East and West Universities, assuming that 15 students attend a course, assuming that both universities charge executives a $360 tuition fee per course attended.

f. It is always better to have fixed rather than variable cost. Explain why this statement is false.

g. It is always better to have variable rather than fixed cost. Explain why this statement is false.