Reference no: EM131910209

Problem

Break-even analysis for management education. The dean of the Graduate School of Management at the University of California at Davis was considering whether offer a particular seminar for executives. The tuition was $650 per person. Variable costs, which included meals, parking, and materials, were $80 per person. Certain costs of offering the seminar, including advertising the seminar, instructors' fees, room rent, and audiovisual equipment rent, would not be affected by the number of people attending (within a "relevant range"). Such costs, which could be thought of as step costs, amounted to $8000 for the seminar.

In addition to these costs a number of staff, including the dean of the school worked on the program. Althoug the salaries paid to these staff were not affected by offerering the seminar, working on the seminar took these people away from other duties thus creating an opportunity cost estimated of $7,000 for this seminar.

Given this information, the school estimated the break-even point to be ($8,000 + $7,000)/($650 - $80) = 26.3. If the school wanted to at least break even on this program it should offer the program only if it expected at least 27 students to attend. Write a report to the dean that evaluates the quality of this analysis. In particular focus on concerns about the accuracy of the data and the limitations of cost volume profit analysis.