i) Calculate the breakeven number of students needed at the two different prices being considered. (ii) How many students would have to enrol (at each price level) to generate a surplus of £200,000 per year? (iii) Recommend one of the two pricing strategies explaining the reason for your choice.
Excaster University is considering launching a new 12 month taught Masters programme in Data Analytics. In order to offer the programme the University will incur the following fixed costs:
a) One full time administrator at an annual cost of £40,000
b) Advertising and promotional costs of £25,000 per year
c) Subscriptions to data providers £50,000 per year
d) Licenses for analytical software £35,000 per year
e) In addition the course will incur an overhead charge for use of shared resources of £45,000 per year.
Teaching on the course will be delivered at an estimated cost of £500,000 per year.
The variable costs associated with delivering an excellent student experience are estimated at £2000 per student.
Bathchester University (about 60 miles away) offers a competitive course priced at £13,000 which attracts 60 students. Plymhampton University (about 30 miles away) also offers a competitive course and charges £9,000 and has recruited 40 students for the most recent intake.
Excaster are considering different two different prices for the course: a higher price than Bathchester (£15,000) and one between the two competing existing courses (£11,000)
(i) Calculate the breakeven number of students needed at the two different prices being considered.
(ii) How many students would have to enrol (at each price level) to generate a surplus of £200,000 per year?
(iii) Recommend one of the two pricing strategies explaining the reason for your choice.
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