State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered.

STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE

Degree Income Statement

For the Academic Year Ending June 30

Revenue 6,000,000

AdvertisingBBA program

225,000

Faculty salaries

3,060,000

Degree operating costs (part-time staff)

390,000

Building maintenance

555,000

Classroom costs (building depreciation)

1,275,000

Allocated school administration costs

645,000

Total costs

$

6,150,000

Net loss

$

(150,000

)

Now the dean of the Business School is considering expanding the BBA program by offering an evening program in a nearby city. The new evening program would be the same size (in terms of students). The school's CFO estimates that the combined BBA revenue (on-campus plus the evening program) will be twice the current revenue. Because the evening program will be new, advertising expenses for the evening session will be three times their current level. Faculty salaries will double. Degree operating costs will increase by 50 percent. Building maintenance and classroom costs will remain unchanged, but classroom space will be rented at a cost of $300,000 per academic year. School administration costs will increase by $30,000, and allocated school administration costs (for both programs) will be $780,000 per academic year.

Required:

a.Using the worksheet below, determine what will be the contribution of the combined BBA program given these estimates.

b.Are there other factors the dean should consider before making a decision?

State University Business School, BBA Degree

Degree Income Statement

Differential Revenues and Costs

For the Academic Year Ending June 30

Revenue

$

Cost

Advertisin - BBA program

Faculty salaries

Degree Operating Cost

Building maintencance

Classroom costs

Differential school administration costs

Total costs

$

Net gain from BBA Program

$