Northern Community College (NCC) has 4,000 full-time students and offers a variety of academic programs in three areas: professional studies, arts and technology. The professional studies programs prepare students for administrative and clerical jobs in a variety of professional settings, including accounting, medicine and law. The arts program's offerings are wide ranging and include graphic design, digital animation, culinary arts, cosmetology, and music arts. The technology programs are also varied, including information technology, medical laboratory technology, electrical engineering technology, pharmacy technology, and natural resources technology. The chief financial officer of NCC, Lynn Maple, has consistently emphasized to other members of the senior management team the importance of understanding the costs of delivering the various academic programs. To that end, the costing system used at NCC tracks the direct costs of each program, which are shown below on an annual basis, along with the number of full-time students: Item Professional Arts Studies Technology Total Full-time students 2,000 Professors' salaries $1,260,000 1,000 $650,000 1,000 4,000 $780,000 $2,690,000 Administrative salaries 105,000 70,000 70,000 245,000 Supplies 40,000 150,000 50,000 240,000 Teaching support 160,000 100,000 80,000 340,000 Facilities 275,000 150,000 175,000 600,000 Total Direct Costs $1,840,000 $1,120,000 $1,155,000 $4,115,000 It is very important to understand the overhead costs consumed by each academic program at NCC in determining the full cost of operating the programs. Central administration at NCC allocates financial resources Maple 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 resources are consumed by each program. If Maple'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 NCC, Maple decides to implement ABC. She, along with the 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, Maple decides to keep the process manageable and comes up with six key activities. Next, base on a series of interviews with various NCC employees who work in the departments covered by the identified activities, Maple and West estimate the percentage of the total administrative, facility, and office expense resources consumed by each activity. Again, to keep the process efficient, Maple 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: Resource Distribution across Activities Activity Administrative Facilities Office Central administration 20% 5% 15% Information systems technology 20% 15% 15% Student counselling services 5% 5% 10% Human resources 10% 5% 10% Library operations 20% 60% 30% 3507 1.00% 2004

Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
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Northern Community College (NCC) has 4,000 full-time students and offers a variety of academic programs in
three areas: professional studies, arts and technology. The professional studies programs prepare students for
administrative and clerical jobs in a variety of professional settings, including accounting, medicine and law. The
arts program's offerings are wide ranging and include graphic design, digital animation, culinary arts,
cosmetology, and music arts. The technology programs are also varied, including information technology,
medical laboratory technology, electrical engineering technology, pharmacy technology, and natural resources
technology.
The chief financial officer of NCC, Lynn Maple, has consistently emphasized to other members of the senior
management team the importance of understanding the costs of delivering the various academic programs. To
that end, the costing system used at NCC tracks the direct costs of each program, which are shown below on an
annual basis, along with the number of full-time students:
Item
Professional Arts
Studies
Technology
Total
Full-time students
2,000
Professors' salaries
$1,260,000
1,000
$650,000
1,000
4,000
$780,000
$2,690,000
Administrative salaries
105,000
70,000
70,000
245,000
Supplies
40,000
150,000
50,000
240,000
Teaching support
160,000
100,000
80,000
340,000
Facilities
275,000
150,000
175,000
600,000
Total Direct Costs
$1,840,000
$1,120,000
$1,155,000
$4,115,000
It is very important to understand the overhead costs consumed by each academic program at NCC in
determining the full cost of operating the programs. Central administration at NCC allocates financial resources
Transcribed Image Text:Northern Community College (NCC) has 4,000 full-time students and offers a variety of academic programs in three areas: professional studies, arts and technology. The professional studies programs prepare students for administrative and clerical jobs in a variety of professional settings, including accounting, medicine and law. The arts program's offerings are wide ranging and include graphic design, digital animation, culinary arts, cosmetology, and music arts. The technology programs are also varied, including information technology, medical laboratory technology, electrical engineering technology, pharmacy technology, and natural resources technology. The chief financial officer of NCC, Lynn Maple, has consistently emphasized to other members of the senior management team the importance of understanding the costs of delivering the various academic programs. To that end, the costing system used at NCC tracks the direct costs of each program, which are shown below on an annual basis, along with the number of full-time students: Item Professional Arts Studies Technology Total Full-time students 2,000 Professors' salaries $1,260,000 1,000 $650,000 1,000 4,000 $780,000 $2,690,000 Administrative salaries 105,000 70,000 70,000 245,000 Supplies 40,000 150,000 50,000 240,000 Teaching support 160,000 100,000 80,000 340,000 Facilities 275,000 150,000 175,000 600,000 Total Direct Costs $1,840,000 $1,120,000 $1,155,000 $4,115,000 It is very important to understand the overhead costs consumed by each academic program at NCC in determining the full cost of operating the programs. Central administration at NCC allocates financial resources
Maple 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 resources are consumed
by each program. If Maple'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 NCC, Maple decides to implement ABC. She, along with the 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, Maple decides to keep the process manageable
and comes up with six key activities. Next, base on a series of interviews with various NCC employees who work
in the departments covered by the identified activities, Maple and West estimate the percentage of the total
administrative, facility, and office expense resources consumed by each activity. Again, to keep the process
efficient, Maple 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:
Resource Distribution across Activities
Activity
Administrative
Facilities
Office
Central administration
20%
5%
15%
Information systems technology
20%
15%
15%
Student counselling services
5%
5%
10%
Human resources
10%
5%
10%
Library operations
20%
60%
30%
3507
1.00%
2004
Transcribed Image Text:Maple 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 resources are consumed by each program. If Maple'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 NCC, Maple decides to implement ABC. She, along with the 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, Maple decides to keep the process manageable and comes up with six key activities. Next, base on a series of interviews with various NCC employees who work in the departments covered by the identified activities, Maple and West estimate the percentage of the total administrative, facility, and office expense resources consumed by each activity. Again, to keep the process efficient, Maple 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: Resource Distribution across Activities Activity Administrative Facilities Office Central administration 20% 5% 15% Information systems technology 20% 15% 15% Student counselling services 5% 5% 10% Human resources 10% 5% 10% Library operations 20% 60% 30% 3507 1.00% 2004
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