The SCSU School of Business last year had total fixed costs for the year of $642

Question

The SCSU School of Business last year had total fixed costs for the year of $642,839.00 (Dean’s salary, maintenance costs, etc.), and average variable costs of $55.93 per credit hour (faculty salary and other costs dependent on credit hours of enrollment). The School of Business generated a total of 39,690 student credit hours of enrollment. Revenue per credit hour is composed of tuition ($25 per credit hour for in-state students and $65 per credit hour for out-of-state students), plus State appropriations ($50 per in-state student credit hour and $10 per credit hour for out-of-state students), plus research grants (generating $150,000 per year). Hint: treat the grant money as additional revenue of $150,000/39,690 = $3.78 per credit hour.

1. Find the breakeven enrollment (in credit hours) for the School, using the above data.

Explanation / Answer

Fixed cost = $642,839

Contribution per credit hour = Revenue – Variable cost

                                              = ($25 + $65 + $50 + $10 + $3.78) - $55.93

                                              = $153.78 - $55.93

                                              = $97.85

Break-even enrollment in credit hours = Fixed cost / Contribution per credit hour

                                                            = $642,839 / $97.85

                                                            = 6,569.63

                                                            = 6,570 credit hours (Answer)

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