Calculation of the fixed and variable costs of operating the university.
Midstate University is trying to decide whether to allow 100 more students into the university. Tuition is $5000 per year. The controller has determined the following schedule of costs to educate students:
|
Number of Students
|
Total Costs
|
|
4000
|
$30,000,000
|
|
4100
|
30,300,000
|
|
4200
|
30,600,000
|
|
4300
|
30,900,000
|
The current enrollment is 4200 students. The president of the university has calculated the cost per student in the following manner: $30,600,000/4200 students = $7286 per student. The president was wondering why the university should accept more students if the tuition is only $5000.
a) What is wrong with the president's calculation?
b) What are the fixed and variable costs of operating the university?