Question

how would the contribution margin for a 12 credit taking student vary from the contribution margin of a 15 credit taking student when they both pay the same amount and are both considered full time?

Answer 1

Contribution Margin is computed as selling price per unit ( Sales) , minus the variable cost per unit (Variable Costs).

Suppose each subject is of 3 credits.

This means student with 12 credits will have 4 courses whereas student with 15 credits will have 5 courses. Assuming both are full time students and pay the same fee structure for the semester. Lets assume total fee paid = 10,000 USD.

However, Variable costs are costs that change with fluctuations in enrollment. As enrollment increases, so do these costs. Likewise, a reduction in enrollment will lower variable costs. A few examples include textbooks and supplies, software licenses, salaries and benefits for school personnel, and supplies for food services.

Hence, variable costs for student with less credits (courses) will be lower than that of a student with higher credits (courses). variable cost per course (faculty salary ,textbooks, supplies , etc.) = 800 USD

Then Student A (12 credits) will have contribution margin = 10,000 - (800*4) = 6800 USD

Whereas, Student B (15 credits) will have contribution margin = 10,000 - (800*5) = 6,000 USD