Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students increase by 10%, net income will increase by_______. a. 25%. b. 30%. c. 10%. d. 20%.
Business · High School · Wed Jan 13 2021
Answered on
Let's break this down step by step:
Currently: TI expects to serve 500 students.
Total fixed costs are $60,000.
Revenue per student is $200.
Given this information, let's calculate TI's current net income:
Total Revenue = Number of students * Revenue per student
Total Revenue = 500 students * $200
Total Revenue = $100,000
Total Cost = Fixed Costs
Total Cost = $60,000
Net Income = Total Revenue - Total Cost
Net Income = $100,000 - $60,000
Net Income = $40,000
So, the current net income is $40,000.
Now, if the estimated number of students increases by 10%, TI would serve:
500 students + (10% increase) = 500 students + 50 students = 550 students
New Total Revenue = 550 students * $200 = $110,000
Net Income after the 10% increase:
New Net Income = New Total Revenue - Total Cost
New Net Income = $110,000 - $60,000
New Net Income = $50,000
The change in net income:
Change in Net Income = New Net Income - Current Net Income
Change in Net Income = $50,000 - $40,000
Change in Net Income = $10,000
Now, to find the percentage increase in net income:
Percentage Increase = (Change in Net Income / Current Net Income) * 100
Percentage Increase = ($10,000 / $40,000) * 100
Percentage Increase = 25%
Therefore, if the estimated number of students increases by 10%, the net income will increase by 25%. So, the correct answer is a. 25%.