CVP Analysis; Strategy; Critical Success Factors Garner Strategy Institute (GSI) presentsexecutive-level training seminars nationally. Eastern University (EU) has approached GSI to present40 one-week seminars during 2019. This activity level represents the maximum number of seminarsthat GSI is capable of presenting annually. GSI staff would present the week-long seminars in variouscities throughout the United States and Canada.Terry Garner, GSI’s president, is evaluating three financial options for the revenues from Eastern:accept a flat fee for each seminar, receive a percentage of Eastern’s profit before tax from the seminars, and form a joint venture to share costs and profits.Estimated costs for the 2019 seminar schedule follow:Garner Strategy Institute Eastern UniversityFixed costs for the year:Salaries and benefits $200,000 N/A*Facilities 48,000 N/A*Travel and hotel 0 $210,000Other 70,000 N/A* Total fixed costs $318,000 $210,000Variable cost per participant:Supplies and materials 0 $47Marketing 0 18Other site costs 0 35*Eastern’s fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will beincurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit beforetax for the seminars.EU plans to charge $1,200 per participant for each 1-week seminar. It will pay all variable marketing, site, and materials costs.Required1. Assume that the seminars are handled as a joint venture by GSI and EU to pool costs and revenues.a. Determine the total number of seminar participants needed to break even on the total costs for thisjoint venture. b. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $169,400? 2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU.EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU’sprofit before taxes from the seminars. Compute the minimum number of participants needed for GSI toprefer the 40% fee option over the flat fee. (Round your answer up to the nearest whole number.) Showsupporting computations.3. What are the strategic and implementation issues for GSI to consider in deciding whether to enter intothe joint venture? (CMA Adapted)
CVP Analysis; Strategy; Critical Success Factors Garner Strategy Institute (GSI) presents
executive-level training seminars nationally. Eastern University (EU) has approached GSI to present
40 one-week seminars during 2019. This activity level represents the maximum number of seminars
that GSI is capable of presenting annually. GSI staff would present the week-long seminars in various
cities throughout the United States and Canada.
Terry Garner, GSI’s president, is evaluating three financial options for the revenues from Eastern:
accept a flat fee for each seminar, receive a percentage of Eastern’s profit before tax from the seminars, and form a joint venture to share costs and profits.
Estimated costs for the 2019 seminar schedule follow:
Garner Strategy Institute Eastern University
Fixed costs for the year:
Salaries and benefits $200,000 N/A*
Facilities 48,000 N/A*
Travel and hotel 0 $210,000
Other 70,000 N/A*
Total fixed costs $318,000 $210,000
Variable cost per participant:
Supplies and materials 0 $47
Marketing 0 18
Other site costs 0 35
*Eastern’s fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will be
incurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit before
tax for the seminars.
EU plans to charge $1,200 per participant for each 1-week seminar. It will pay all variable marketing, site, and materials costs.
Required
1. Assume that the seminars are handled as a joint venture by GSI and EU 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 that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $169,400?
2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU.
EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU’s
profit before taxes from the seminars. Compute the minimum number of participants needed for GSI to
prefer the 40% fee option over the flat fee. (Round your answer up to the nearest whole number.) Show
supporting computations.
3. What are the strategic and implementation issues for GSI to consider in deciding whether to enter into
the joint venture?
(CMA Adapted)
Trending now
This is a popular solution!
Step by step
Solved in 9 steps with 8 images
