President Emert of Eastern State University had decided on a new budgeting syste

Question

President Emert of Eastern State University had decided on a new budgeting system for all departments in the university. Historically, each department was provided with an annual budget that was essentially the same amount cach year. Being a trained economist, the president has decided to allow student de mand for courses to determine how the University's budget is to be allocatec to departments. Each semester, every department will receive $40 for each stu dent credit hour (SCH) taught. For example, a three-credit course for fall se mester might enroll thirty-five students, thus generating 105 SCH. For ofering that course, the department would receive $4,200 (ie, S40 × 105 SCH) The following table shows selected cost data for each of four university de partments: Number of Salary Cost Variable Cos Department Economics English Physics Physical education Faculty 10 15 per SCH $3.00 2.00 7.00 3.00 (Fired) $500.000 510,000 380,000 200,000 a. Determine the breakeven number of student credit hours for each denartment

Explanation / Answer

A.

IF the salary cost is the fixed cost per faculty:

For department of economics:

Breakeven number of student credit hours (SCH) = Fixed cost/(Price per SCH- variable cost per SCH)

Breakeven number of student credit hours (SCH) = 10*500/(40-3) = 135.14 or 135 SCH

For department of English:

Breakeven number of student credit hours (SCH) = 15*510/(40-2) =201.32 or 201 SCH

For department of Physics:

Breakeven number of student credit hours (SCH) = 8*380/(40-7) = 92.12 or 92 SCH

For department of Physical Education:

Breakeven number of student credit hours (SCH) = 7*200/(40-3) = 37.84 or 38 SCH

IF the salary cost is the total fixed cost per department:

Breakeven number of student credit hours (SCH) = Fixed cost/(Price per SCH- variable cost per SCH)

Breakeven number of student credit hours (SCH) = 500/(40-3) = 13.51 or 14 SCH

For department of English:

Breakeven number of student credit hours (SCH) = 510/(40-2) = 13.42 or 13 SCH

For department of Physics:

Breakeven number of student credit hours (SCH) = 380/(40-7) = 11.5 or 12 SCH

For department of Physical Education:

Breakeven number of student credit hours (SCH) = 200/(40-3) = 5.4 or 5 SCH

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