Chapter 4, Problem 15E

To determine

(a)

Concept introduction:

ABC costing is a methodology to allocate overhead. In the ABC costing, the allocation of overheads is through cost activity rather than through labor or machine hrs.

To compute:

Selection of cost drivers and activity rate.

Answer to Problem 15E

Nature of expense	Cost drivers	Activity rate for each quantity of cost drivers
Building expenses	Area of square feet	$11.5\text{ per square feet}$
Placement services	Number of students	$33\text{ per student }$
Instructional courses	Number of Courses	$\text{280 per courses}$

Explanation of Solution

In the give case, we have three cost drivers:

$\begin{array}{c}1)\text{For building expenses = Area of square feet}\\ \text{2)For Placement services = Number of studentes}\\ \text{3)Instructional Courses = Number of Students}\end{array}$

Nature of expense	Cost drivers	Total cost	Total quantity of cost drivers	Activity rate for each quantity of cost drivers
Building expenses	Area of square feet	$\$2,300,000$	$200,000$	$\$11.5\text{ per square feet}$
Placement services	Number of students	$\$660,000$	$20,000$	$\$33\text{ per student }$
Instructional courses	Number of Courses	$\$3,360,000$	$1,200$	$\text{\$2,800 per courses}$

$\text{Activity rate for each cost driver = }\frac{\text{Total Cost}}{\text{Total quantity of cost drivers}}$

To determine

(b)

Concept introduction:

In the ABC costing, there is distribution of all overhead cost in the ratio of respective cost drivers.

To compute:

Cost driver value and proportion for each group of students for each activity.

Answer to Problem 15E

Nature of expense	Education and Training	Continuing Professional Education
Building expenses	$85\%$	$15\%$
Placement services	$60\%$	$40\%$
Instructional courses	$67\%$	$33\%$

Explanation of Solution

Nature of expense	Total quantity of cost drivers	Education and Training		Continuing Professional Education
		Number of drivers	Proportion	Number of Drivers	Proportion
Building expenses	$200,000$	$170,000$	$85\%$	$30,000$	$15\%$
Placement services	$20,000$	$12,000$	$60\%$	$8,000$	$40\%$
Instructional courses	$1,200$	$8,000$	$67\%$	$4,000$	$33\%$

The proportion of education and training and continuing professional education with respect to each cost driver is calculated by dividing the number of drivers by the total cost drivers.

To determine

(c)

Concept introduction:

In order to correctly associate costs with product and services, ABC assigns cost to activities based on their resources.

Cost per unit for each student.

Answer to Problem 15E

Cost per unit for Education and Training Students is $\$382.533$

Cost per unit for Continuing Professional Education Students is $\$216.125$

Explanation of Solution

Nature of expense	Activity rate for each quantity of cost drivers	Education and Training		Continuing Professional Education
		Number of drivers	Amount	Number of Drivers	Amount
Building expenses	$11.5\text{ per square feet}$	$170,000$	$\$1,955,000$	$30,000$	$\$345,000$
Placement services	$33\text{ per student }$	$12,000$	$\$396,000$	$8,000$	$\$264,000$
Instructional courses	$\text{280 per courses}$	$8,000$	$\$2,240,000$	$4,000$	$\$1,120,000$
Total			$\$4,591,000$		$\$1,729,000$

The total amount of education and training and continuing professional education with respecti to each cost driver is calculated by multiplying of activity rate to number of drivers.

Total Cost of Education and Training Students is $\$4,591,000.$

Number of students in Education and Training program is $12,000.$

$\begin{array}{c}\text{Per student cost = }\frac{\$4,591,000}{12000}\\ =\$382.583\end{array}$

Total Cost of Continuing Professional Education is $\$1,729,000.$

Number of students in Continuing Professional Education is $8,000.$

$\begin{array}{c}\text{Per student cost = }\frac{\$1,729,000}{8,000}\\ =\$216.125\end{array}$