Kolbec Community College (KCC) has 4,000 full-time students and offers a variety of academic programs in three areas professional studies, arts, and technoloxy. The professional studies programa prepare students for administrative and clerical jobs in a variety of professional settings, including accounting, medicine, and low. 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 technologs: 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 each program, which are shown below on an annual basis, along with the number of fulltime students Arts Item Full-time students Professor salaries Administrative salaries Supplies Teaching support Facilities Total direct cost Prudesional Sales 2,000 $1.260,000 105,000 40,000 160.000 275,000 51.840,000 1.000 5 650,000 70,000 150,000 100,000 150,000 S1.120,000 Tech 1.000 $ 750.000 70,000 50.000 80,000 175.000 S1.155.000 Total 4,000 $ 2,690,000 245.000 240,000 340,000 600,000 $ 4,115,000 Activity Central administration Information systems Technology Student Counseling services Human resouros Library operations Registrar's office Total minime Arti Admistrate Facilities 5% 154 5 58 105 55 203 60% 25% 10% 100% 100% Office 155 155 105 10% 308 20% 100% Working with key personnel from each of the six activities shown above. Jones and West the identify the activity mense and the quantity of that mentre med for each teaching program Fortunately, KCC Implemented an enterprise resource planning tema few years, which is already tracking much of the information deeded regarding the activity measures and the specific quantities for each anemie program Arta Any Central administration Tinformation systems technology Student Counselling services Human resources Hours sperit on program Processing hours Number of students counsella Number of admin.staff and faculty members 6.000 6.000 TO 7.000 1.000 115 7.000 12,000 205 Library operations Registrat's office Nimber of library creations Full-time students 21 6.000 2,000 15 1000 1.000 37000 1.000 Cal Administrative salaries Facility cost Office expense Total areas $ 900.000 1.300.000 300.000 $2.500,000 Traditionally, KCC has allocated overliead costs to academic programs on the basis of the number of filltime students in each program. This approach was deemed appropriate since Jones ressoned that increasing the number of students at KCC would result in higher overtid cout (e... more facilities would be needed, more Indirect support costs wild be left. However, one is beginning to question the accuracy of the traditional approach since it rests in a similar full cost per student for the arts and technology program, which she feels doesn't make sense. Based on her knowledge of the program. Joltes feel that the technology program is probably more expensive to deliver than the arts program, but this does not come through to the traditional costing approach Jones recently attended a seminar on mart techniques being used by leading educational institutions that among other topies covered the basics of the ABC approach She likes the idea of being able to sign indirect costs to academie programs on the basis of how much of the mupport activity resources are commed by each program. If Jones's Instincts are correct in that some por conserves of certain activities than others, this could have a significant impact on the overhead costs assigned to each under the ABC approach tipon return to KCC Jones decides to implement ABC She, along with Aniston CFO James West, tregiis by identifying 2 the key activities used to support the teachine programs. Rather than getting too detailed with respect to identifying activities in the Initial implementation, Jones decides to keep the process manageable and come up with a key activities Nest based on a series of interviews with variou KCC employees who work in the departments covered by the identified activities Jones and West estimate the percentage of the total administrative, facility, and office expense rectes corried by each activity Again, to keep the process efficient Jones rounds all percentages to the nearest 5%. figuring that a close enough approach will suffice for this initial Implementation and recognizing that the estimates are subjective to begin with. The results are shown below Required: 1. Using the traditional approach to assigning overhead costs to academic programs: a Calculate the predetermined overhead rate. b. Assign the overhead costs to each academic program using the predetermined rate. c Calculate the total cost per student (direct costs plus overhead) of operating each academic program. 2. Using ABC, complete the following requirements: a Using Exhibit 7-7 as a guide, complete the first stage allocation of overhead costs to academic programs. b. Using Exhibit 7-8 as a guide, calculate the activity rates for each of the activity cost pools. c Using the activity rates calculated in (6), complete the second-stage allocation of overhead to academic programs. 3. Based on the results of (2). calculate the total cost per student direct costs plus overhead) of operating each academic program. 4. Draft a memo to Jones explaining the key reasons for differences in the total cost per student of operating each academic program that arise between the traditional costing approach and ABC Total Taken fram General Leder Oh DO $ 25,00 KI EXHIBIT 7-7 First Stage Allocations to Activity Cost Pool Activity Control Customer Order Cum Orders Design Traduction Department Tinct factory was 51350 S000 STKO 550) Factory equipment depreciation INIO story unities p. 0,000 0 Fable 0 0 General Administratie Adrive and salaries.... 12 Office equipment depreciation 15. 0 12.500 Admin.livewildingane 0 0 Marketing Deput Matricting was mellores 20 1500 Selling pent.. 5.000 Total $12.5MM SINI 50 130 HOLOKO Soon 10000 32.00 NO 00000 SOUND 000 95.00 25. 250 30,000 SUR SLOKO Exhibli 7-6 hout Custom Orders consume 25of the Swed the store face was 29 X 5500,000 $125.000 Other than in the wheet.come in a similar tabiri EXHIBIT 7-8 Computation of Activity Rates (a) Activity Cost Pools Total Cost Customer orders $320,000 Product design $252.000 Order size $380.000 Customer relations $367,500 Other $490,500 * From Exhibit 7-7 (b) Total Activity 1.000 orders 400 designs 20,000 MHS (a) = (b) Activity Rate $320 per order $630 per design $19 per MH $1,470 per customer Not applicable 250 customers Not applicable