Onassis Catering is a Greek company that provides passenger and crew meals to airlines operating out of two international airports in Athens and Corfu. The operations at the two airports are managed separately, and top management believes that there may be benefits to greater sharing of information between the two operations. academic programs. To that end, the costing system used at KCC tracks the direct costs of each program, which are shown below on an annual basis, along with the number of full-time students:

It is very important to understand the overhead costs consumed by each academic program at KCC in deter-mining the full cost of operating the programs. Central administration at KCC allocates financial resources to academic programs based on the estimated full cost per student of delivering the program. The overhead costs at KCC are significant, totaling over 60% of direct costs. Total annual overhead costs at KCC are as follows:

Traditionally, KCC has allocated overhead costs to academic programs on the basis of the number of full-time students in each program. This approach was deemed appropriate since Jones reasoned that increasing the number of students at KCC would result in higher overhead costs (e.g., more facilities would be needed, more indirect support costs would be incurred, etc.). However, Jones is beginning to question the accuracy of the traditional approach since it results in a similar full cost per student for the arts and technology programs, which she feels doesn't make sense. Based on her knowledge of the pro-grams, Jones feels that the technology program is probably more expensive to deliver than the arts pro-gram, but this does not come through in the traditional costing approach.

Jones recently attended a seminar on management techniques being used by leading educational institutions that, among other topics, covered the basics of the ABC approach. She likes the idea of being able to assign indirect costs to academic programs on the basis of how much of the support activity re-sources are consumed by each program. If Jones's instincts are correct in that some programs consume more resources of certain activities than others, this could have a significant impact on the overhead costs assigned to each under the ABC approach.

Upon returning to KCC, Jones decides to implement ABC. She, along with Assistant CFO James West, begins by identifying the key activities used to support the teaching programs. Rather than getting too detailed with respect to identifying activities in the initial implementation, Jones decides to keep the process manageable and comes up with six key activities. Next, based on a series of interviews with various KCC employees who work in the departments covered by the identified activities, Jones and West estimate the percentage of the total administrative, facility, and office expense resources consumed by each activity. Again, to keep the process efficient, Jones rounds all percentages to the nearest 5%, figuring that a "close enough" approach will suffice for this initial implementation and recognizing that the estimates are subjective to begin with. The results are shown below

Working with key personnel from each of the six activities shown above, Jones and \Vest then identify the activity measure and the quantity of that measure used for each teaching program. Fortunately, KCC implemented an enterprise resource planning system a few years ago, which is already tracking much of the information needed regarding the activity measures and the specific quantities for each academic program:

Required:

1. Using the traditional approach to assigning overhead costs to academic programs:

a. Calculate the predetermined overhead rate.

b. Assign the overhead costs to each academic program using die predetermined rate.

c. Calculate the total cost per student (direct costs plus overhead) of operating each academic program.

2. Using ABC, complete the following requirements:

a. Complete the first-stage allocation of overhead costs to academic programs.

b. Calculate the activity rates for each of the activity cost pools.

c. Using the activity rates calculated in (b), complete the second-stage allocation of overhead to academic programs.

3. Based on the results of (2), calculate the total cost per student (direct costs plus overhead) of operating each academic program. 

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Professional Technology Item Total Studies Arts Full-time students . 1,000 $ 780,000 2,000 $1,260,000 105,000 1,000 4,000 $ 650,000 $2,690,000 245,000 Professors' salaries . 70,000 Administrative salaries 70,000 Supplies.... Teaching support. Facilities . 40,000 160,000 275,000 150,000 100,000 50,000 240,000 340,000 80,000 175,000 $1,155,000 150,000 $1,120,000 600,000 $4,115,000 Total direct cost. $1,840,000 Cost Administrative salaries $ 900,000 Facility costs . Office expenses.. 1,300,000 300,000 $2,500,000 Total overhead costs