Brilliant is a non-profit training institution. Brilliant received a notice from its major donor that it would phase out from giving any further donations to the institution with effect from the current year. The government has also withdrawn its tax exemptions and the institution is expected to pay its training staff as well as meet all its costs of operations. A tax rate of 20% per annum of surpluses made by all institutions like Brilliant has been introduced by the government. The directors of Brilliant have however, applied to the government for an extension of tax exemption to allow it to re-organise and re-structure its operations. The response to the application is still pending at the relevant government offices.

A management accounting consultant has been engaged to gather relevant data and give advice accordingly. The management accounting consultant has gathered data and has come up with two alternative options to choose from as follows:

Option 1:

The institution can offer a one-year training course and charge a fee of 500 per year per participant. The variable cost to be incurred by the institution per participant per year is expected to be 200. The total fixed cost to be incurred by the institution is expected to be 6,000 per year.

Option 2:

A hotel firm has offered to rent the entire Brilliant institution's premises for 4,000 per year to use it for accommodation of its hotel guests. If this decision Option is adopted, Brilliant institution can be able to reduce its total fixed costs per annum to 1,000, being in the form of contractual commitments.

Required:

Compute the minimum quorum in terms of number of participants required by Brilliant training institution per annum and the minimum amount of total fees revenue required to break even. (5 Marks)

If the government agrees to continue exempting Brilliant training institution from payment of taxes on its surpluses, determine the number of participants that must be enrolled for training per year so as to be indifferent about offering training to participants and renting the entire premises to the hotel firm. (5 Marks)

If the government maintains that Brilliant training institution has to pay the statutory tax of 20% per annum on its surpluses and it is targeting to make an after tax surplus of 7,200, assess the number of participants that must be enrolled in order to earn this target surplus. (5 Marks)