30 5 points Problem 5-17A (Algo) Using activity-based costing to improve allocation accuracy LO 5-1, 5-3 Franklin Academy is a profit-oriented education business. Franklin provides remedial training for high school students who have fallen behind in their classroom studies. It charges its students $855 per course. During the previous year, Franklin provided instruction for 1,000 students. The income statement for the company follows: Revenue Cost of instructors Overhead costs. Net income $ 855,000 (558,000) (257,500) $ 39,500 The company president, Andria Rossi, indicated in a discussion with the accountant, Sam Trent, that she was extremely pleased with the growth in the area of computer-assisted instruction. She observed that this department served 300 students using only three part- time instructors. In contrast, the classroom-based instructional department required 28 instructors to teach 700 students. Ms. Rossi noted that the per-student cost of instruction was dramatically lower for the computer-assisted department. She based her conclusion on the following information: Franklin pays its part-time instructors an average of $18,000 per year. The total cost of instruction and the cost per student are computed as follows: Type of Instruction Number of instructors (a) Computer-Assisted Classroom Number of students (b) Total cost (cax $18,000) 3 300 $54,000 28 700 $504,000 Cost per student (c + b) $ 180 $ 720 Assuming that overhead costs were distributed equally across the student population, Ms. Rossi concluded that the cost of instructors was the critical variable in the company's capacity to generate profits. Based on her analysis, her strategic plan called for heavily increased use of computer-assisted instruction. Return to question