University Breakeven Analysis

Assume that a regional comprehensive state university charges $500.00 per credit. Each student also pays a $1,000.00 annual fee per year. The fixed cost is $700,000.00 per year, and the variable cost per credit is $10,000.00. 

1. If a faculty member is hired to teach 24 credits per year, calculate the breakeven number of students that the faculty member must teach.

2. If each course or a section is worth 3 credits, calculate how many students per class are needed to break even on the cost of offering these courses by a faculty teaching 24-credits per year.

Solution

• Total Costs

  • Fixed cost: $700,000 per year

  • Variable cost: $10,000 per credit × 24 credits = $240,000

  • Total Cost = Fixed Cost + Variable Cost = $700,000 + $240,000 = $940,000 per year

• Revenue per Student

  • Each student contributes revenue in two ways:

    • Tuition: $500/credit × 24 credits = $12,000

    • Annual fee: $1,000

  • Total Revenue per Student = Tuition + Annual Fee = $12,000 + $1,000 = $13,000 per student per year

• Breakeven Number of Students

  • To cover the total cost, divide the total cost by the revenue per student. 

  • Therefore, Breakeven Number of Students: 

= (Total Cost)/(Revenue per Student)

= $940,000/($13,000/Students)

= 72.31 Students

• • Breakeven Number of Students = 73

• Students per Class

  • The faculty member teaches 24 credits per year, with each course being 3 credits.

  • Number of course sections per year:

= (24 Credits)/(3 Credits/Class)

= 8 Class

• • • Total students per year (73) divided by 8 courses:

= (73 Students)/(8 Class)

= 9.125 students/class

• • Rounding up, the university needs at least 10 students per course to breakeven.

• Final Answer

  • Breakeven number of students per faculty member per year: 73 students

  • Students needed per course (3 credits each): 10 students 

Solution Using MS Excel

Figure 2-8 shows revenue over the number of students served by each faculty member. 

While total cost for each faculty member, including the variable and fixed components, does not change, the revenue earned changes over the number of students enrolled.