Hi,

I am needing help understanding how to get the break even cost. I am needing to solve the required a-d on the attached.

CASE 4-2 MAYFIELD SOFTWARE, CUSTOMER TRAINING [LO 2] Marie Stefano is the group director of customer training for Mayfield Software. In this capacity, she runs a center in and classes are cancelled if enrollment is fewer than 15 stu Kirkland, Washington, that provides training to employees of dents. Classes typically are held Monday through Friday, companies that use Mayfield's inventory control, customer man although some classes are held on Saturdays and Sundays. agement, and accounting software products. Her group employs 2. Rent relates to the training center in Kirkland, which is receptionist and an office m ffice manager/bookkeeper, and she has not part of Mayfield's main campus located in Bellevue, arrangements with several part-time trainers who are hired on Washington, an as-needed basis. (They are all retired employees of Mayfield 3. Advertising costs relate to the cost of monthly advertise Software.) Trainers are paid $4,000 per daylong class, Mayfield is a ments in trade journals such as Tech Worker and Inventory decentralized company, and Marie is given considerable authority Management. These ads provide information on upcoming to advertise and conduct classes as she sees fit. training sessions. 4. Operating manuals are provided to cach participant. Report of Operating Results, 2016 5. Postage, envelopes, and paper costs relate primarily to bill ing companies for employees who participate in classes. Revenue $6,120,000 This cost varies with the number of participants. Less operating costs; 6. Central charges are assigned to each group at Mayfield Soft Trainer costs $3,400,000 ware based on actual sales, The allocation relates to costs Director salary 180,000 incurred for the benefit of the company as a whole, Include Receptionist 60,000 ing salaries of the CEO and company president, legal costs, Office manager 80,000 costs related to the company's central office building, brand Utilities, phone, etc. 38,000 advertising, and so on. The charge is 20 percent of revenue. Lease expense related to computers, servers, etc. 400,000 REQUIRED Rent 100,000 Operating manuals for a. As indicated, the training group suffered a loss in 2016. Thus, participants 510,000 unbeknownst to Marie, Mayfield management is considering Postage, envelopes, paper, etc. 12,750 shutting down the training center. Given the results of 2016, Advertising 160,000 what would be the effect on Mayfield Software's total company Total operating costs 4,940,750 profit in 2017 if the training center is closed at the start of the Profit before central charges 1,179,250 year? Central charges 1,224,000 b. Given the current room configuration and approach to allo- Group profit 44,750 cation of central charges (20 percent of revenue), calculate the number of classes that must be offered (with an average enroll- During 2016, the group conducted 850 day-long classes with ment of 20 students) for Marie's group to break even on the an average enrollment of 20 students paying $360. The group's Report of Operating Results. Report of Operating Results for 2016 is detailed above. C. Recalculate your answer to part b assuming Marie can lower the amount paid to instructors to $3,500 per class. Should ADDITIONAL FACTS Marie seriously pursue this option? d. Mayfield Software is releasing version 4.0 of Customer Track 1. All equipment is leased on a yearly basis, Costs include 100 in 2017. Marie believes that this will create a demand for 30 workstations for students (one workstation for every seat in each of the four 25-student classrooms), plus servers and additional daylong classes with an average enrollment of 20 stu- other miscellaneous equipment. While average class en- dents per class. What effect will this have on "group profit" on rollment is 20 students, some classes are full (25 students). Marie's Report of Operating Results? Assume that instructors will be paid $4,000 per class