Superior Lessons offers three product lines: music lessons, sports lessons, and early grades tutoring after school lessons. The following represents the income statements for the most recent period:

Qualitative factors that may impact future performance:

● A competitor has opened up within 2 miles.

● There is a rumor that the new lease company will try to raise the rent by 10%.

● A nearby college is willing to give service hours and non-paid internships if college students work/assist at Superior Lessons in the early grades division.

● The most recent customer survey indicates high satisfaction with the progress made by early grades students in their regular classes. The sports students have provided average satisfaction ratings for golf and baseball and high satisfaction for basketball and tennis.

Other facts:

● To increase interest in music lessons, the company offered social media discount coupons of half price for an introductory set of lessons. The sales reflect the additional volume, and the selling costs reflect the discount given. The company conducted an exit survey and was surprised to learn that the purchasers of the coupon lessons were not interested in paying full price in the future to continue lessons.

● The previous margin (income divided by sales) for music lessons was approximately 50%.

● The company is considering adding another line, “dance lessons,” since many of the music instructors could also teach dance lessons. The company is trying to determine which numbers/facts would be relevant.

a. Identify which of the following would be relevant in terms of decisions and product line profitability:

i. The rent and property taxes of the facilities

ii. The additional insurance for potential student accidents

iii. The interest in dance lessons (with and without coupons) from current customers in the sports and early grades

iv. Competition

v. The advertising costs

b. List at least three other facts/types of information that you believe would be relevant to the decision of adding dance lessons.

c. Discuss (in terms of cost/benefit) whether it is enough to just give a list of relevant items or if it is important to try to estimate the “soft data.”

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Income Statement Items Number of lessons Sales Direct materials, variable overhead, and selling Direct labor Fixed costs: allocated Fixed costs: avoidable Net Income Music Sports Early Grades Total 800 1,600 $15,000 $14,000 5,400 $59,000 (9,100) (11,400) (8,900) (7,000) 3,000 $30,000 (3,300) (800) (5,000) (3,000) (2,200) (6,200) (2,300) (2,100) (4,500) (2,400) (1,600) (3,000) $4,000 $7,300 $11,300 $22,600