2. Review the performance report for the MBA program at Hidden Gem University provided in Exhibit A. The Dean made a claim that the MBA program enrollment is up by 20%. Comparing actual to budgeted amounts, how would the Dean support this claim?

The Vanishing Tuition Quandary: A Responsibility Accounting Case Study "Wait a minute, did you just say that our MBA program is losing money? How can that be? Enrollment is up by 20% and we have not added any faculty positions." Chris, the Dean of the School of Business was just about speechless during the meeting with the University finance committee. The University was looking at each program and developing five-year projections. For the future financial health of the University, the finance committee was evaluating programs and planning to make recommendations to discontinue the unprofitable programs. Jamie, the finance committee chair, began the meeting by going over performance reports for each of the degreed programs offered in the most recent academic year. Jamie explained the allowances and adjustments as well as the allocation of common costs to each program. Chris immediately objected to the way the performance reports were calculated and the expectation that degreed programs were to be held accountable for coststbeyond their control. Chris tried to explain the concept of responsibility accounting and the importance of analysis to better understand the merit of each program and the value that each contributed to the future growth of the university. Background Information Hidden Gem University was a small private school that had the flexibility and agility to add programs and change curriculum to meet the current demands of students. Economic pressures were forcing the University to make tough decisions to focus on core programs and reduce costs to stay relevant in the changing landscape of higher education. The MBA program was added to the curriculum six years ago and struggled to get started with the heavy competition by the state university in the area. However, the ability to react quickly and provide resources to support students was paying off through increased enrollment in the MBA program. The program had grown steadily and was very popular not only with traditional students, but also adults because it provided business acumen, leadership skills, and the credentials to achieve promotions and be competitive in the job market. The MBA program was especially popular with the faculty and staff at the University due to the tuition waiver program. The Employee Tuition Waiver Program Employees of Hidden Gem were able to take advantage of a tuition waiver program that allows faculty, staff, and their dependents to attend university classes at no charge. Prospective students go through the same process as everyone else for acceptance into the University and must abide by all other requirements as students at the University. However, they attended classes for credit with no tuition payment due, ever. The tuition waiver program is available for any degreed program at the University. With the downturn in the economy, the MBA program has become particularly enticing as a way to achieve a valuable degree at no cost, other than books. The Performance Report The finance committee had been working for weeks on preparing performance reports for each program in the University. They evaluated each line itert and utilized activity-based costing to allocate overhead and common costs to the appropriate degreed programs. The performance report for the MBA program is provided in Exhibit A. Requirements: 1. What type of responsibility center is the MBA degree program for the Hidden Gem University (revenue, cost, profit or investment)? How do you know? Provide three examples of other responsibility centers for a typical university, indicate the type of responsibility center for each and provide your reasoning for the type identified. Ensure that your three examples include at least one cost center and one profit center. 2. Review the performance report for the MBA program at Hidden Gem University provided in Exhibit A. The Dean made a claim that the MBA program enrollment is up by 20%. Comparing actual to budgeted amounts, how would the Dean support this claim? 3. Explain the concept of management by exception. Refer to the report provided in Exhibit A to give specific examples for the application of a management by exception focus. (HINT: you will need to provide reasonable threshold values.) 4. Explain how performance reporting differs for an overall organization report compared to a performance report considering responsibility accounting for a single unit within an organization (i.e. cost centers, profit centers, etc.). I 5. Using responsibility accounting for decision making and control, evaluate which revenues and costs should be included or excluded from the performance report for the MBA program at Hidden Gem University in Exhibit A. Be sure to consider how the employee tuition waivers should be handled. Based on your evaluation, take a position on which revenues and costs should be included and excluded in the performance report and provide your support for each position. 6. Is there an ethical dilemma that the university faces by offering a program that is so popular with its own employees that it is unprofitable to continue supporting the program? Provide recommendations which the Dean can use to support continuing the MBA program. Exhibit A Hidden Gem University Performance Report for the MBA Program For the Year Ending May 31, 2021 Budget Actual Variance Revenue Tuition & Fees Scholarships Employee Tuition Waivers Net Revenue 3,118,345 -3,592 -1,437,856 1,676,897 3,745,982 -2,994 -2,053,940 1,689,048 627,637 F 598 F 616,084 U 12,151 F. U U U U F. Direct Expenses Faculty Adjunct Admin Wages Employee Benefits Travel Advertising Office Supplies Computer Lease Depreciation Cleaning/Maintenance Total Direct Expenses 543,571 17,407 45,170 119,141 23,894 5,467 13,452 18,450 15,827 14,638 817,017 551,042 72,587 63,115 128,638 20,973 4,906 19,424 20,121 14,993 20,539 916,338 7,471 55,180 17,945 9,498 2,921 561 5,972 1,671 834 5,901 99,322 F U U F U U Indirect Expenses Personnel Cost Advertising Facilities/Insur/Prop Tax/Utilities Cleaning/Maintenance Total Indirect Expenses 399,046 13,982 304,396 17,149 734,573 426,437 11,238 311,936 24,831 774,442 27,391 2,744 7,540 7,682 39,869 U F U U U 125,307 -1,732 127,040 Operating Income/Loss U Exhibit A (cont'd) Additional notes: 1. Tuition and Fees result from credit hours of students with a major in the respective program. 2. Scholarships are university scholarships granted to students with a major in the respective program. These amounts are unfunded and come from the operating budget of the respective program. All decisions regarding grant and distribution are made by the Dean of the respective program. Amounts less than budgeted indicate that students awarded scholarships withdrew from the program. 3. Tuition Waivers are an employee benefit provided to employees (and their family members) of the University. The reduction in revenue amounts are the tuition dollars generated by students with a major in the respective program having an approved tuition waiver in place. 4. Direct Expenses are traceable costs to the respective program. 5. Indirect Expenses are allocated costs from other departments (e.g., president/provost office, human resources, finance, etc.) to the respective program using activity-based costing (e.g., office supplies are allocated based on credit hours of students with a major in the respective program, facilities cost are allocated based on square footage used for the respective program, etc.)