However, he did recover the following partial CVP chart — Joseph Maksoud considering starting web-based educational business ePrep MBA plans offer short-course

Joseph Maksoud is considering starting a web-based educational business, ePrep MBA. He plans to offer a short-course review of accounting for students entering MBA programs. The materials would be available on a password-protected website, and students would complete the course through self-study. Maksoud would have to grade the course assignments, but most of the work is in developing the course materials, setting up the site, and marketing. Unfortunately, Maksoud’s hard drive crashed before he finished his financial analysis.

However, he did recover the following partial CVP chart:

Requirements

1. Label each axis, sales revenue line, total expense line, fixed expense line, operating income area, and operating loss area.

2. If Maksoud attracts 400 students to take the course, will the venture be profitable?

3. What are the break-even sales in students and dollars?

SOLUTION

Req. 1

The vertical axis is dollars and the horizontal axis is students (or units). The sales revenue and total expense lines are labelled on the graph. Fixed expense of $30,000 is labelled. The operating income and operating loss areas are labelled.