(L. OBJ. 3) Analyzing a cost-volume profit graph [15-20 min] Zac Hill is considering st...

(L. OBJ. 3) Analyzing a cost-volume profit graph [15-20 min]

Zac Hill is considering starting a Web-based educational business, e-Prep 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 Web site; student would complete the course through self-study. Hill 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, Hill’s hard drive crashed before he finished his financial analysis. However, he did recover the following partial CVP chart:

Requirements

1. Label each axis, the sales revenue line, the total costs line, the fixed costs, the operating income area, and the breakeven point.

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

3. What are the breakeven sales in students and dollars?