iPad 12:23 100% Kolbec Community College (KCC) has 4,000 full-time students and

Question

iPad 12:23 100% Kolbec Community College (KCC) 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 KCC, Lynn Jones, 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 KCC tracks the direct costs of eaclh program, which are shown below on an annual basis, along with the number of fulltime students Professional Studies Arts Total Item Full-time students Technology 1,000 2,000 1,000 4,000 Professors' salaries Administrative salaries Supplies Teaching support Facilities 1,295,000 112,000 47,000 167,000 289,000 1,910,000 794,000 73,500 53,500 87,000 182,000 $ 1155,000 $ 1190,000 $664,000 $ 73,500 157,000 103,500 157,000 $ 2,753,000 259,000 257,500 357,500 628,000 $ 4,255,000 Total direct cost It is very important to understand the overhead costs consumed by each academic program at KCC in determining the full cost of operating the programs. Central administration at KCC allocates financial resources to academic programs based on the estimated full cost per student of delivering the program. The overhead costs at KCC are significant, totaling over 60% of direct costs. Total annual overhead costs at KCC are as follows: Administrative salaries Facility costs Office expenses Total overhead costs Cost $ 930,000 1,340,000 310,000 $2,580,000 Traditionally, KCC has allocated overhead costs to academic programs on the basis of the number of Fulltime students in each program. This approach was deemed appropriate since Jones reasoned that increasing the number of students at KCC would result in higher overhead costs (e.g., more facilities would be needed, more indirect support costs would be incurred, etc.). However, Jones is beginning to question the accuracy of the traditional approach since it results in a similar full cost per student for the arts and technology programs, which she feels doesn't make sense. Based on her knowledge of the programs, Jones feels that the technology program is probably more expensive to deliver than the arts program, but this does not come through in the traditional costing approach

Explanation / Answer

1) a. Tradional approach
As KCC traditionally distributed the overhead cost on the basis of basis of full time students
so predetermined overhead rate = Annual overhead cost / total number of students
   = 2,580,000 / 4,000
   = 645 per student
b.
overhead cost for
professional studies = number of students * predetermined overhead rate
   = 2,000 * 645 = 1,290,000
Arts = 1,000 * 645 = 645,000
Technology = 1,000 * 645 = 645,000

c. Total cost per acedemic per student = total cost (direct + overhead ) / Numbers of students
Professional studies = (1,910,000 + 12,90,000) / 2,000 = 1,600 per student
Arts = (1,155,000 + 645,000) / 1,000 = 1,800 per student
Technology = (1,190,000 + 645,000)/ 1,000 = 1,835 per student

2 a. cost = % age * total cost per overhead

Activity Administrative Facilities Office total
central administration 186,000 67,000 62,000 315,000
Information system technology 186,000 201,000 62,000 449,000
student counselling services 46,500 67,000 15,500 129,000
human resources 93,000 67,000 15,500 175,500
Lirbrary operations 186,000 871,000 108,500 1,165,500
Registrar office 232,500 67,000 46,500 3,46,000
Total 930,000 1,340,000 310,000

Activity total of activity total cost cost per activity(toatl cost/ activity)
central administration (6300+7350+7350) = 21,000 315,000 15
Information system technology (5,800+2,700+11,500)= 20,000 449,000 22.45
student counselling services (144+92+164) = 400 129,000 322.25
human resources (21+15+14) = 50 175,500 3510

Lirbrary operations (7,000+3500+3500)=14,000 1,165,500 83.25
Registrar office (2,000+1,000+1000)=4,000 3,46,000 86.5

Cost = activity per cost * no. of activities per acedmic

Activity Professional studies Arts Technology
central administration 6300*15= 94,500 7350*15=110,250 7350*15=110,250   

Information system technology 130,210 60,615 258,175
student counselling services 46,404 29647 52849
human resources 73710 52650 49140
Lirbrary operations 582750 291375 291375

Registrar office 173,000 86,500 86,500
total overhead cost 1100574 631037 848,289

3. Total cost per acedemic per student = total cost (direct + overhead ) / Numbers of students
Professional studies = (1,910,000 + 1100574) / 2,000 = 1,505.28 per student
Arts = (1,155,000 + 631,037) / 1,000 = 1,786.04 per student
Technology = (1,190,000 + 848,289)/ 1,000 = 2,038.29 per student

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