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Hi This Is Bep for Cost Analysis

In: Business and Management

Submitted By saibaba12
Words 284
Pages 2
Exercise on B.E.P

A private university with a current enrolment of 12,000 students is reviewing cost and revenue data for the past academic year. Student tuition is Rs 3,600 a year. Tuition normally cover 75 per cent of university expenditures. The remaining 25 per cent comes from endowments and contributions. During the last academic year fixed costs amounted to Rs 300 lakhs. The rest of the costs varied with student enrolment. Costs have been rising more rapidly than tuition or contributions, and the university just broke even last year. A tuition increase is being contemplated. The budget committee thinks endowment revenues and contributions will remain constant at last years’ level for the next several years

The fixed costs are expected to increase by Rs 30 lakhs and the variable costs are expected to increase by 10 per cent. The president of the university tells the budget committee that he expects a new grant of Rs 50 lakhs in addition to the normal contributions for each of the next 5 years from a large corporation owned by an alumnus of the university. The university has been postponing a number of major capital improvements and building projects.

Required:

(i) If the grant is received and tuition is raised to Rs 4,200, how much money would the university have available in the first year for capital improvements and building with student enrolment of 11,200 and the expected cost increase?

(ii) If the grant is received and costs increases as predicted for the coming year, what tuition should the university charge to break-even with its current enrolment of 12,000 students after providing Rs 40.40 lakhs for capital

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