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Show Me the Money Case Review

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Submitted By azuberbier
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Many of the local and national headlines are calling attention to how universities will be handling large budget cuts and tumbling balances in endowment funds. The market downturn and struggling economy are mainly to blame for these budget cuts. As a student, my main concern is will I still be able to take the courses I need and want. Our textbook offered a look at break-even analysis, and the article I selected shows how break-even analysis can be used by universities to determine the profitability of all of its course offerings.

While the "Show Me the Money" article is from 2004, it is very applicable to the current situation universities find themselves in. The following formulas are used to determine course profitability:

Revenue – Variable Costs = Contribution Margin – Fixed Costs = Profit State Funding + Tuition Revenue + Lab Fees = Direct Revenue Faculty Salaries + Adjunct Faculty Salaries + Other Salaries + Opt Exp = Direct Expense Direct Revenue – Direct Expense = Contribution Margin

Using these formulas, contribution margin can be understood as course profit or loss. After defining the formulas above, the authors applied it to enrollment data and were able to rank courses according to overall contribution margin. The courses with negative contribution margins were not making a fixed-cost contribution. It is logical for the general courses required by all majors to have a higher contribution margin due to the higher enrollments. For most people the question at this point is why a university would offer a course that is not profitable. Starting a new program or responding to a particular community interest are two of the reasons given by the authors as to why unprofitable courses may still be offered.

The information revealed using the break-even analysis can also be beneficial for universities for the following

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