The dean of the Graduate School of Management at the University of California at Davis was considering
Question:
The dean of the Graduate School of Management at the University of California at Davis was considering whether to 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 $8,000 for the seminar. In addition to these costs, a number of staff, including the dean of the school, worked on the program. Although the salaries paid to these staff were not affected by offering the seminar, working on the seminar took these people away from other duties, thus creating an opportunity cost estimated at $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 students. 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.
Opportunity Cost Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
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The analysis classifies the costs associated with the executive program into their variable step and ...View the full answer
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