Question

You are the owner/manager of a pottery studio and are considering offering a beginner’s pottery class for a reduced rate. You believe that once your students start sculpting, they’ll be hooked and will continue with the classes at your regular prices. You aren’t sure how to price the discounted beginner’s class and have gathered the following information:
Direct cost per class: $95.00
Indirect studio costs/annual: $140,000
Anticipated # of classes (all): 20/week; 50 weeks
Anticipated # of pottery intro classes: 5/week; 50 weeks
Anticipated # of students for each pottery class: 20

You were able to determine that the indirect costs ($140,000) consisted of the following:
Studio Rental $70,000
Your salary $40,000
Utilities $ 5,000
Office Staff $12,000
Instructor Benefits $ 6,000
Cleaning services $ 6,000
Refreshments $ 1,000

At what price will you offer the discounted beginner’s class?

Answer 1

Direct cost per class = $95

Indirect cost per class = $140000 / (20*50) = $140 per class

Total cost of Intro pottery class = (95 + 140) * (5 * 50) = $58750

Price per student of Intro pottery class = total cost / number of students = $58750 / 20 = $2937.5 per student

The intro pottery class students could be provided with discount of indirect cost, thus

Discounted Price that will be offered to the beginner's class = $2937.50 - Indirect cost

= $2937.50 - [ (140 * 250) / 20 ] = $1187.50 per student