Question

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 30,900,000The 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?

Answer 1

Answer:

A) The presidents' calculation is wrong because he is dividing the total cost by the number of students. He is not taking into account the effect of fixed cost in the cost structure. The university should accept more students so the fixed costs will distribute in a larger number of students.

B) Fixed costs= $18000000

Explanation:

Giving the following information:

Midstate University is trying to decide whether to allow 100 more students to the university.

Tuition is $5000 per year.

The controller has determined the following schedule of costs:

- 4000 students= $30,000,000

- 4100students=  $30,300,000

- 4200 students=  $30,600,000

- 4300 students= $30,900,000

The current enrollment is 4200 students.

A) The presidents' calculation is wrong because he is dividing the total cost by the number of students. He is not taking into account the effect of fixed cost in the cost structure. The university should accept more students so the fixed costs will distribute in a larger number of students.

B) Every 100 students the costs increase by $300000. This means that each student increase costs by $3000.

Fixed costs= Total cost - variable cost* number of students

Fixed costs= 30600000 - 4200*3000= $18000000