Madison Musical Education Company (MME) provides instrumental music education to children of all ages. Payment for services comes from two sources:

(1) a contract with Horizon School to provide private music lessons for up to 150 band students a year (where a year is 9 months of education) for a fixed fee of $135,000, and

(2) payment from individuals at a rate of $95 per month for 9 months of education each year. In the 2012-2013 school year,

MME made a profit of $4,000 on revenues of $249,000:

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Data table

Revenues:
Horizon School Contract	$135,000
Private students	114,000
Total revenues		$249,000
Expenses:
Administrative staff	$74,000
Teaching staff	80,000
Facilities	41,000
Supplies	50,000
Total expenses		245,000
Profit		$4,000

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Part 1

MME conducted an activity analysis and found that teaching staff wages and supplies costs are variable with respect to student-months. (A student-month is one student educated for 1 month.) Administrative staff and facilities costs are fixed within the range of 2,100-2,600 student-months. At volumes between 2,600 and 3,100

student-months, an additional facilities charge of $3,550 would be incurred. During the last year, a total of 2,500

student-months of education were provided, 1,200 of which were for private students and 1,300 of which were offered under the contract with Horizon School.

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Requirements

1.	Compute the following using cost information from year 2012-2013 operations: Fixed cost per year Variable cost per student-month
2.	Suppose that in 2013-2014 Horizon School decreased its use of MME to 120 students (that is, 1,080 student-months). The fixed contract price of $135,000 was still paid. If everything else stayed as it was in 2012-2013, what profit or loss would be made in 2013-2014?
3.	Suppose that at the beginning of 2013-2014 Horizon School decided not to renew its contract with MME, and the management of MME decided to try to maintain business as usual with only private students. How many students (each signing up for 9 months) would MME require to continue to make a profit of $4,000 per year?