i am having difficulties understand the cost and revenue allocation. Also having difficultty understanding transfer pricing. haven't studied managerial accounting in over 5years

The Muskeg School Division (MSD) was recently restructured to consolidate numerous small community schools into large regional schools for elementary, middle and high school students.1 Don Richards is the superintendent of MSD. 2 MSD receives their funding from the provincial government, and Don then allocates these funds to the schools at a fixed rate per student.3 As part of the recent restructuring of MSD, many services were also centralized into two departments: academic and administration. Each department is run by an associate superintendent and is required to operate within their assigned budget. The costs of the central services departments are allocated to the three schools based on student enrolment. The proposed budgets for the service departments are included in Appendix I. 4 Each school is run by a principal who is responsible for maintaining high-quality programs within the constraints of their allocated funding. 5 Educational programs and expense budgets proposed by the school principals must be approved by the superintendent or one of the two associate superintendents of MSD. Provincial funding has been reduced in recent years causing school principals to have trouble maintaining the quality of existing programs. Performance evaluation of both the principals and associate superintendents is based on their ability to stay within their budgets. While quality of programs is a goal, there has been no decision yet regarding how to evaluate this. The recent changes within MSD have resulted in challenges for Don. There is currently significant tension amongst the principals and associate superintendents who feel that their division is not being treated fairly, which came to head in a meeting Don recently held to address their concerns (Appendix II). Don admitted that the schools are running tight. While the elementary school is doing well, the middle school is just breaking even and the high school is in a deficit - he has included a copy of the high school proposed budget as an example in Appendix III. 7 After the meeting, Don realized he required assistance in regards to ensuring that all members of management are working towards a common goal. He has hired you, Rachel Eyalan, CPA 8, to help him initiate better management practices. He asks you to review the information he has gathered for you and prepare a report outlining the issues presented, including revenue and cost allocations, and your recommendations for improvements. Academic Department: Salaries 640,000 $ Materials and supplies 260,000 Teacher recruitment and training 182,000 1,082,000 $ Administration Department: Salaries 450,000 $ Board and superintendent 206,000 Office supplies and computer operations 279,500 School bus service 1,343,750 Facilities (maintenance and utilities) 420,750 2,700,000 $ 3,782,000 $ Enrolment Total enrolment Allocated cost Elementary School 900 2,440 1,395,000 $ Middle School 840 2,440 1,302,000 $ High School 700 2,440 1,085,000 $ 201X/201Y Central Services Financial Budget Based upon last year's actual results, the following breakdown of service hours was budgeted for the two departments: Department Annual hours of service used by Total providing Academic Administration Elementary Middle High Hours service Department Department School School School Academic - 1,000 8,240 6,900 5,700 21,840 Administration 2,600 - 15,000 16,200 10,000 43,800 Total 2,600 1,000 23,240 23,100 15,700 65,640 The Administration Department, run by Wanda Lalonde, is responsible for all MSD's facilities, accounting and finance, school bus services, and school board costs. This department has 10 full-time staff providing 16,800 hours of service. The remaining service hours are provided by part-time bus drivers. Appendix I 201X/201Y Central Services Budgets Appendix II Notes from Meeting High school principal: \"I object to the $1,085,000 cost allocation to the high school's budget (Appendix III). The allocation formula results in my school subsidizing the other two schools because many high school students drive cars to school rather than use school buses, so they do not cost as much from an administrative perspective. Additionally, high school courses also require less curriculum and academic support than the lower level courses as teachers do more of this work on their own.\" Elementary school principal: \"With our school being a new building, it requires far less maintenance and utilities costs. The middle school is ancient and it creates most of those costs - even the high school is five-years old and not as efficient as us. We are not in a deficit but if anything we should still be paying less than we are!\" \"As well, I think the way revenue is allocated is unfair. As you know, MSD aims for a ratio of 27:1 for middle and high-school classes, but in elementary you want a ratio of 22:1. Given we need to have more teachers than other schools we should receive more money!\" Middle school principal: \"As a result of the high allocated costs, I cannot afford to hire enough teachers to meet the desired student-to-teacher ratio. We can only afford 28 teachers - The high school and elementary school have 26 and 40 respectively.\" Mike Andrews, Associate Superintendent of Academic Services: \"I am under pressure for exceeding my budget when it is a result of me being charged too much for bus services by the Administration Department. I have been using the district buses several times a year to send teachers to professional development seminars. I just solicited a bid for an upcoming trip from Acme Bus Company and it came in at half the cost (Appendix IV). I need to be allowed to contract externally.\" Wanda Lalonde, Associate Superintendent of Administration: \"I cannot transfer the bus service at less than full cost and be expected to meet my budget. This will just shift Mike's budget overrun to my department. It is not fair to compare my transfer price to an outside bid.\