Question

Woolman College is considering the construction of a new women’s dormitory. The dormitory will have 80 rooms and the ability to accommodate three students per room. Woolman estimates the dormitory will cost $1.8 million and will have a useful life of 30 years with no salvage value. Using information from existing dorms, Woolman knows the following about each cost:

A linear regression was performed for utility costs (dependent variable) and housing revenue (independent variable), with an adjusted R2 = 0.5. In a separate regression to determine causation they found a total cost function for utility costs with a y-intercept of 22,000 and an x-coefficient of 0.05. All historical data were annual amounts.

Supplies = $ 350 / student (per year)

Insurance = $ 40,000 / year

Repair and Maint. = $ 32,000 / year

Resident assistants – One resident assistant is needed for every 45 students. Each resident assistant is paid $7,000 / year in salary.

Given the above information, please answer the following information.

If Woolman charges $ 3,100 / student for annual housing in the dormitory, what is the contribution margin per student?

Prepare a contribution margin income statement to show the profit generated from this new dorm if it is 60% full? If it is 80% full?

What is the cost per student (including variable and fixed costs) at 60% capacity? At 80% capacity?

Answer 1

IF WOOL MEN CHARGES $3100 PER STUDENT,THEN CONTRIBUTION PER STUDENT=

CHARGES PER STUDENT =$3100

LESS:VARIABLE COST

SUPPLIES ($350)

ASSISTANT SALARY ($155)

($7000/45)

CONTRIBUTION $2595

COST PER STUDENT:

SUPPLIES $350

OFFICE ($7000/45) $155

INSURANCE ($40000/240*) $167

REPAIR ($32000/240) $133

AND MAINTENANCE

DEPOSIT ($60000/240) $250

TOTAL $1055

Step-by-step explanation:

The given table will elaborate it more.