Sherma Edwards OMDE 606 Section 9040 16 October 2013 Assignment 2- A Course in Social Entrepreneurship List of questions Based

on the above figures and the scenario, please, answer the following questions. Include references (not lengthy quotations) to sections of the textbook to support your argument where appropriate.

1. Below is a classification of the different cost items, listed as either fixed or variable costs, which include (matching row number to Fixed or Variable as appropriate) AND as capital or recurrent costs. Fixed costs tend to not vary and the volume and its relationship can be found in chapter five in Rumbles text pages 32 to 41. Example 5.1 is very relevant to this scenario. Also Example 4.3 1. Col: A Fixed cost, recurrent 2. Col: B- Fixed Cost, recurrent 3. Col: C- Fixed cost, variable costs 4. Col: D-fixed cost, recurrent 5. Col: E- fixed cost, recurrent cost 6. Col: F- capital, variable 2. Here is a calculation of the Recurrent Fixed Costs of course overheads (management and secretarial support). A. $37,150.00- (Col: 4 Management + Secretarial support)

3. A calculation of the aggregate Fixed Costs of Development (FD) and the aggregate Fixed Costs of Maintenance (FM) is explained below and reference can be linked to the Excel attachment.
A.

FD + FM= 161, 550 + 9. 100 = 170, 650 (col: 20+24)

4. Below is a calculation of the variable cost per student (V). Page 23, Figure 4.3. (definition)

A.

Col. 35 total: 572.13

5. The depreciation rate can be calculated on a basis of the lifetime of the presentation of the project (comparison to Rumble Table 6.1) and charged to each year of presentation. (You may use the format of the attached spreadsheet.)
A. B.

FD= 26925 ( col. 8, Calculation Template) FM= 3033 ( Col. 9 Calculation Template)

6. The following template of Rumble Table 6.4, annualize the Fixed Costs of Development (FD) over the six years of presentation at 7.5% interest and the Fixed Costs of Maintenance (FM) over three years at the same rate. It also gave the percentages of other numbers. For the mock assignment I noticed the Excel provided needed a calculation of 7.5% and the actual assignment had calculation for 1.0%. This was one of the inconsistency/ differentiations I observed. I used Rumbles table 6.2 to assist with my calculations. Thus the mock assignment calculation was also slightly incorrect. Chapter 6- pages 42-50.
A. B. C.

FD= 170650*.213(7.5%)= $36348.45 FM= 9100*.385(7.5%)= $3503.5 FD @ 1% per the assignment 1. 170650*.167= 28449 (Col. F11 Calculation Template)

D.

FM @ 1% per the assignment 1. 9100*.333= 3030 (col. F12 Calculation Template)

7. Summary of the reasons for and against annualization in your own words. Rumble- Pages 47 to 50 discusses annualization factors. Annualization often changes a rate of any length into a rate that reflects the rate on an annual (yearly) basis. It can be done on rates of less than one year or multiple years, and usually does not take into account the effects of compounding. The annualized rate is not a guarantee but only an estimate, and its accuracy depends on the variance of the rate. The variable is expressed on an annual basis and is mathematically expressed through yearly terms. Through planning decisions cost of forgone interest should be a primary concern. Consideration and focus should only be to make a way to earn an interest but this is not always the case.

8. Calculation of the equation of total costs (TC=F+VxN) is used with that of the annualized figure of fixed costs and the total number of students expected over the lifetime of the course. Pages 22 & 28.
A.

N= (equals the total accumulated students over 6 years)= 160*6= 3360(N) TC (N)341632+572.13*N(3360) TC =341632+572.13 (3360)= 2263988.8 (Col. M Row 6 Calculation Template, Row 15, Row 14)

B. C. D. 9.

Drawing of the respective graph of the total cost function. (refer to excel attachment)

TC=F+VxN

i.
10.

Calculation of the equation of average costs (AC=F/N+V) using the annualized figure for fixed costs and the total number of students expected over the lifetime of the course. (Page 35. Figure 5.2) i. N=3360 (total accumulated student total) ii. F/N+V=AC (page 89) iii. (341632/3360)+572.13= 673.81

11.

Drawing of the respective graph of the average cost function. (refer to Excel)

AC=F/N+V
3000 2000 1000 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 AC=F/N+V

12.

The student is charged per student fee specified and calculation of the break-even point (BEP). (Usage of the equation TC=F+VxN and the income equation: I=SFxN (Income =Student Fee x No of students). The break-even point is BEP=F/(SF-V) Break Even (5.5 is defined in Rumbles text) i. F= 341632 ii. SF=1350 iii. V= 572.13 iv. 341632/1350-572.13= (-319.07)

13.

Representation of the break-even point is done graphically (overlaying the graphs of TC and I(sf*n).
1000000 800000 600000 400000 200000 0 Year 1 -200000 -400000 Year 2 Year 3 Year 4 Year 5 Year 6 TC=F+VxN INCOME

14.

Distance education costs may be more cost efficient to that of conventional modes mainly because of the way in which the lesson is taught. It is done through the

means of technology (ICT) and e-learning methods that allow costs to decrease. It is believed that the TC and AC equations and the specific cost structure of DE suggest that DE may be more cost-efficient than conventional modes of educational provision. Reasoning: (Measurement in the terms of average cost per student). Distance education often has smaller aggregate costs (V) than conventional education according to general overhead costs.