Every year, the administration at ND University receives funding from the provincial government. This year, the government
Question:
Every year, the administration at ND University receives funding from the provincial government. This year, the government announced that due to budget cuts, it would be providing significantly less funding Although ND University has yet to hear what the actual amount of the cut will be, the administration has decided to be proactive and try to identify ways to be more efficient with its money Each year, each department is given an equal amount of money per student registered in the depart- ment. For example, the accounting department is given the same amount per student as the science department. In addition, the university gives an equal amount per student regardless of whether the student is a graduate student or an undergraduate student. As such, the university assumes that all students cost the same amount of money. During a recent town hall meeting to discuss the budget cuts, one faculty member brought up the idea that some departments run cash surpluses at the end of each year, because they do not spend all the money provided per student. This might be an indication that some departments have students who cost the university less than others. One way to determine the cost of a student is by using the activity-based costing (ABC) method. The president of the university, Mahmud Yazbek, has hired you, a young professional accountant, to help understand how activity-based costing may help to understand the cost of a student. President Yazbek has identified the major activities that the students engage in: lectures, labs, recruiting, administrative sup- port, student life support, and educational student support. In addition, he has identifñed several overhead costs (Exhibit 1) and the percentage of time that each cost is spent on each activity. He has also provided you with a list of other information that he believes could act as cost drivers for each activity (Exhibit 2). Before President Yazbek rolls out this new method of costing, he would like to analyze whether the results wll be different from the existing method. The traditional method of allocating these costs has been to add up all of the costs and divide the amount by the total number of students attending the university to determine the cost per student. He has asked you, first, to determine an appropriate cost driver and, second, to determine the cost of an accounting student (graduate and undergraduate) versus the cost of a science student (gradu- ate and undergraduate). He would like you to prepare a report that includes your results and an analysis of your results. Required Prepare the report for President Yazbek.
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young