Refer to the information in Exercise 1-23. The dean of the Business School is considering expanding the
Question:
In Exercise 1-23, State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered. The dean is considering closing down the BBA program because the analysis, which follows, shows a loss. Tuition increases are not possible. The dean has asked for your advice. If the BBA degree program is dropped, school administration costs are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs.
STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE
Degree Income Statement
For the Academic Year Ending June 30
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Costs
Advertising—BBA program . . . . . . . . . . . . . . . . . 75,000
Faculty salaries . . . . . . . . . . . . . . . . . . . . . . . . . . 1020,000
Degree operating costs (part-time staff) . . . . . . . 130,000
Building maintenance . . . . . . . . . . . . . . . . . . . . . 185,000
Classroom costs (building depreciation) . . . . . . . 425,000
Allocated school administration costs . . . . . . . . . 215,000
Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,050,000
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (50,000)
Required
a. What will the contribution of the combined BBA program be given these estimates?
b. Are there other factors the dean should consider before making her decision?
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-0078025525
4th edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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