Refer to the information in Exercise 1-31. The dean of the Business School is considering expanding the BBA program by offering an evening program in a nearby city. The new evening program would be the same size (in terms of students). The school’s CFO estimates that the combined BBA revenue (on-campus plus the evening program) will be twice the current revenue, as shown in Exercise 1-31. Because the evening program will be new, advertising expenses for the evening session will be three times their current level. Faculty salaries will double. Degree operating costs will increase by 50 percent. Building maintenance and classroom costs will remain unchanged, but classroom space will be rented at a cost of $300,000 per academic year. School administration costs will increase by $30,000, and allocated school administration costs (for both programs) will be $780,000 per academic year.

Required
a. Given these estimates, what will the contribution of the combined BBA program be?
b. Are there other factors the dean should consider before making a decision?

Exercise 1-31

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STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree Income Statement For the Acade mic Year Ending June 30 Revenue $6,000,000 Costs Advertising-BBA program 225,000 Faculty salaries 3,060,000 Degree operating costs (part- 390,000 time staff) Building maintenance 555,000 Classroom costs (building 1,275,000 depreciation) Allocated school administration 645,000 costs Total costs $6,150,000 Net loss $ (150,000)