Capital University has four departments. Each student takes 10 classes per year, and only takes course in their own faculty. The only sources of revenue are tuition and government grants. The University receives a grant of $10,000 a year for each student. Costs: Item Amount 15,500,000 Each professor teaches 6 classes per year and all get paid Note Total Salaries the same amount. | Building Student Support 13,020,000| Each classroom is the same size. 195,000,000 Each student generally requires an equal amount of support and Administration Other 17,000,000 | Science labs $10 million, Business trading room $2 million, Engineering labs $5 million Total 240,520,000 Student enrollment: Faculty: Number of classes per year Number of Students in Faculty Arts Science Engineering Business Total 120 198 150 150 618 4,800 2,000 600 2,700 10,100 In order to break-even, the university estimates that tuition should be $13,814 per student ($240,520,000 in costs divided by 10,100 students, less the government grant of $10,000 per student) REQUIRED A. Using Activity Based Costing, calculate how much tuition should be charged per student in each faculty in order for the university to break even. B. Compare the results between the current methodology and cost per student based on Activity Based Costing and briefly comment on who is likely being cross- subsidized. C. Based on your analysis, what can the University do to lower the cost per student for the faculty that has the highest overall cost per student?
Capital University has four departments. Each student takes 10 classes per year, and only takes course in their own faculty. The only sources of revenue are tuition and government grants. The University receives a grant of $10,000 a year for each student. Costs: Item Amount 15,500,000 Each professor teaches 6 classes per year and all get paid Note Total Salaries the same amount. | Building Student Support 13,020,000| Each classroom is the same size. 195,000,000 Each student generally requires an equal amount of support and Administration Other 17,000,000 | Science labs $10 million, Business trading room $2 million, Engineering labs $5 million Total 240,520,000 Student enrollment: Faculty: Number of classes per year Number of Students in Faculty Arts Science Engineering Business Total 120 198 150 150 618 4,800 2,000 600 2,700 10,100 In order to break-even, the university estimates that tuition should be $13,814 per student ($240,520,000 in costs divided by 10,100 students, less the government grant of $10,000 per student) REQUIRED A. Using Activity Based Costing, calculate how much tuition should be charged per student in each faculty in order for the university to break even. B. Compare the results between the current methodology and cost per student based on Activity Based Costing and briefly comment on who is likely being cross- subsidized. C. Based on your analysis, what can the University do to lower the cost per student for the faculty that has the highest overall cost per student?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Capital University has four departments. Each student takes 10 classes per year, and only takes
course in their own faculty. The only sources of revenue are tuition and government grants. The
University receives a grant of $10,000 a year for each student.
Costs:
Item
Amount
Note
Total Salaries
15,500,000 Each professor teaches 6 classes per year and all get paid
the same amount.
Building
Student Support
13,020,000 Each classroom is the same size.
195,000,000 Each student generally requires an equal amount of support
and Administration
Other
17,000,000 Science labs $10 million, Business trading room $2 million,
Engineering labs $5 million
Total
240,520,000
Student enrollment:
Faculty:
Number of classes per year
Number of Students in Faculty
Science
Engineering
150
Arts
Business
Total
120
198
150
618
4,800
2,000
600
2,700
10,100
In order to break-even, the university estimates that tuition should be $13,814 per student
($240,520,000 in costs divided by 10,100 students, less the government grant of $10,000 per
student)
REQUIRED
A. Using Activity Based Costing, calculate how much tuition should be charged per
student in each faculty in order for the university to break even.
B. Compare the results between the current methodology and cost per student based
on Activity Based Costing and briefly comment on who is likely being cross-
subsidized.
C. Based on your analysis, what can the University do to lower the cost per student for
the faculty that has the highest overall cost per student?
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