Mini-Case Keystone Academy (Part 1)

Keystone Academy, a private college preparatory school serving grades 9 through 12, has hired your consulting firm to help analyze the academys costs. Recently, the schools revenues failed to cover its costs, forcing it to fund the excess expenditures with endowment monies. Some faculty believe that this situation may be due to the academys newly adopted practice of giving each new student his or her own laptop computer at no charge. Not wishing to dip into the endowment again in the future, the academy needs your expert advice. Required Your manager on this engagement has decided that you should begin by analyzing the academys value chain activities. Your manager noted that since expenses are driven by process, identifying each cost driver is critical to analyzing and lowering costs. For each item listed below, identify specifically what activities, decisions, and factors make the cost increase or decrease. For example, wages and fringe benefits for the academys administrative staff (item 1 below) are affected by employees education level and experience, the use of technology, and the percentage of full-time employees, among other factors.

1. Wages and fringe benefits for the academys administrative staff.

2. Academic materials (e.g., books and laptop computers) provided to students by the academy at no charge.

3. Wages and fringe benefits for the academys full-time faculty.

4. Repairs to student laptop computers. The school recently hired a full-time repair technician. Repairs that are beyond the technicians abilities are outsourced to a local computer repair shop.

5. Fee charged by a local public accounting firm to audit the academys financial records.

6. Wages for the schools part-time athletic coaches (baseball, football, basketball, tennis, and soc-cer). These coaches are hired on a temporary basis. The number of hours they work is dictated by the number of students participating in each sport (at Keystone every student must participatein at least one of the five sports). On average, each coach is used about 10 hours per week during the full academic year.

7. Depreciation on the academys recently completed performing arts pavilion.

8. Rent for the buses the academy uses to transport its students to and from school.

9. Electricity to operate the academys facilities. The local utilitys charge is composed of a fixed monthly minimum charge plus a charge per kilowatt-hour of electricity used.