Question
Part One Speech Flow Inc. (SFI) is an organization that coordinates seminars to help new streamers launch their platform, giving tips and tricks to help
Part One
Speech Flow Inc. (SFI) is an organization that coordinates seminars to help new streamers launch their platform, giving tips and tricks to help them kick-start their streaming careers. The seminars are usually a week long, in various cities throughout Canada. The maximum amount of seminars that can happen per year is 40 seminars.
Recently, a new streaming platform has launched to compete with the mainline platforms called Bloor Funds (BF). Bloor Funds approached Speech Flow Inc to host 40 week-long seminars in 2022, which they will sell to their streamers to increase the quality of content on their platform.
You are an employee of Speech Flow Inc. and you are evaluating three options with regards on how to structure revenues from Bloor Funds:
-accept a flat fee for each seminar held
-receive a percentage of Bloor Funds' profit before tax for each of the seminars
-form a joint venture with Bloor Funds to share costs and profits
Estimated costs for the 2022 seminar schedule follow:
Speech Flow Inc. | Bloor Funds | |
---|---|---|
Fixed costs | ||
Salaries and benefits | $ 184,000 | N/A* |
Facilities | 64,000 | N/A* |
Travel and hotel | - | 218,900 |
Other | 70,000 | N/A* |
Total fixed costs | $ 318,000 | $ 218,900 |
Variable costs | Per Participant | |
Supplies and materials | - | $ 47 |
Marketing | - | 18 |
Other site costs | - | 35 |
*Bloors fixed costs will be incurred whether or not the seminars are presented so they are excluded because those amounts are not considered relevant then for this decision. Note that Bloor Funds does not include these costs when calculating the profit before tax for the seminars. For each one-week seminar, Bloor Funds will pay all variable marketing, site costs, and materials costs and it plans to charge $1,200 per participant. Required: (please show/label your calculations i.e., show your work, not just your final answers) 1. Assuming that the seminars are handled as a joint venture by SFI and BF to pool costs and revenues.
a. Determine the total number of seminar participants needed to break even on the total costs for this joint venture. b. Assume an effective income tax rate of 30% for the joint venture. To earn an after-tax income of $289,926, how many seminar participants must the joint venture enroll?
2. Assume that SFI is an independent contractor for BF, so SFI and BF do not form a joint venture. BF offers two payment options to SFI: 1) a flat fee of $9,500 for each seminar or 2) a fee of 40% of BFs profit before taxes from the seminars. Calculate the minimum number of participants needed for SFI to prefer the 40% fee option over the flat fee. Part Two Required: A). In your own words, explain what is the underlying relationship CVP analysis models. B). In your own words, describe 3 assumptions of CVP analysis.
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