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Kolbec Community College (KCC) has 4,000 full-time students and offers a variety of academic programs in three areas: professional studies, arts, and technology. The professional studies programs prepare students for administrative and clerical jobs in a variety of professional settings, including accounting, medicine, and law. 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 technology, 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 1,000 Technology 1,000 Total 4,000 $ Item Full-time students Professors' salaries Administrative salaries Supplies Teaching support Facilities Total direct cost Professional Studies 2,000 1.295,000 112,000 47,000 167,000 289,000 1.910,000 664,000 73,500 157,000 103,500 157,000 $ 1.155,000 794,000 73,500 53,500 87,000 182,000 1.190,000 $ 2,753,000 259,000 257,500 357,500 628,000 $ 4,255,000 $ It is very important to understand the overhead costs consumed by each academic program at KCC in determining the full cost of operating the programs. Central administration at KCC allocates financial resources to academic programs based on the estimated full cost per student of delivering the program. The overhead costs at KCC are significant, totalling over 60% of direct costs. Total annual overhead costs at KCC are as follows: Cost Administrative salaries $ 930,000 Facility costs 1,340,000 Office expenses 310,000 Total overhead costs $2,580,000 Traditionally, KCC has allocated overhead costs to academic programs on the basis of the number of Fulltime students in each program. This approach was deemed appropriate since Jones reasoned that increasing the number of students at KCC would result in higher overhead costs (e.g., more facilities would be needed, more indirect support costs would be incurred, etc.). However, Jones is beginning to question the accuracy of the traditional approach since it results in a similar full cost per student for the arts and technology programs, which she feels doesn't make sense. Based on her knowledge of the programs, Jones feels that the technology program is probably more expensive to deliver than the arts program, but this does not come through in the traditional costing approach. ad 12:23 100 . te Jones recently attended a seminar on management techniques being used by leading educational institutions that, among other topics, covered the basics of the ABC approach. She likes the idea of being able to assign indirect costs to academic programs on the basis of how much of the support activity resources are consumed by each program. If Jones's instincts are correct in that some programs consume more resources of certain activities than others, this could have a significant impact on the overhead costs assigned to each under the ABC approach. Upon returning to KCC, Jones decides to implement ABC. She, along with Assistant CFO James West, begins by identifying the key activities used to support the teaching programs. Rather than getting too detailed with respect to identifying activities in the initial implementation, Jones decides to keep the process manageable and comes up with six key activities. Next, based on a series of interviews with various 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 resources consumed 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: 20% Activity Central administration Information systems technology Student counselling services Human resources Library operations Registrar's office Total Resource Distribution across Activities Administrative Facilities Office 20% 5% 20% 20% 15% 5% 5% 5% 10% 5% 5% 20% 65% 35% 25% 5% 15% 100% 100% 100% Working with key personnel from each of the six activities shown above, Jones and West then identify the activity measure and the quantity of that measure used for each teaching program. Fortunately, KCC implemented an enterprise resource planning system a few years ago, which is already tracking much of the information needed regarding the activity measures and the specific quantities for each academic program: Activity Measure Professional Arts Technology Central administration Hours spent on program 6,300 7,350 7,350 Information systems technology Processing hours 5,800 2,700 11,500 Student counselling services Number of students counselled 144 92 Human resources Number of admin.staff and faculty members 21 15 Library operations Number of library circulations 7,000 3,500 3,500 Registrar's office Fulltime students 2,000 1,000 1,000 164 14 4. a) Complete the first-stage allocation of overhead costs to academic programs, using Exhibit 7-7 as a guide. b) Calculate the activity rates for each of the activity cost pools, using Exhibit 7-8 as a guide. (Show, not round, your answers to 2 decimal places.) c) Using the activity rates calculated in (b), complete the second stage allocation of overhead to academic programs d) Calculate the total cost per student (direct costs plus overhead) of operating each academic program. (Show, not round, your answers to 2 decimal places. The number of professional studies students has increased by 30% The number of arts students has decreased by 60% The number of technology students has increased by 40% Office expenses and facility overhead costs has been decreased by 25% Administrative and Facilities Resources have been redirected to Information Technology and Student Counselling evenly, by the reduction in library and central administration. The reduction in each of these activities is by 15%. These redirections are only for Administrative costs. 45% of Facility resources have be redistributed from Library operations and has been reallocated to Student Counselling and Information Technology by 10% and 30% respectively. Counselling is expected to show a decrease in the number of Arts students seen by 15 students and is expected that these 15 student spaces will be used by Professional program students. The total number of library circulations is expected to decrease by 30% for all programs Kolbec Community College (KCC) has 4,000 full-time students and offers a variety of academic programs in three areas: professional studies, arts, and technology. The professional studies programs prepare students for administrative and clerical jobs in a variety of professional settings, including accounting, medicine, and law. 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 technology, 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 1,000 Technology 1,000 Total 4,000 $ Item Full-time students Professors' salaries Administrative salaries Supplies Teaching support Facilities Total direct cost Professional Studies 2,000 1.295,000 112,000 47,000 167,000 289,000 1.910,000 664,000 73,500 157,000 103,500 157,000 $ 1.155,000 794,000 73,500 53,500 87,000 182,000 1.190,000 $ 2,753,000 259,000 257,500 357,500 628,000 $ 4,255,000 $ It is very important to understand the overhead costs consumed by each academic program at KCC in determining the full cost of operating the programs. Central administration at KCC allocates financial resources to academic programs based on the estimated full cost per student of delivering the program. The overhead costs at KCC are significant, totalling over 60% of direct costs. Total annual overhead costs at KCC are as follows: Cost Administrative salaries $ 930,000 Facility costs 1,340,000 Office expenses 310,000 Total overhead costs $2,580,000 Traditionally, KCC has allocated overhead costs to academic programs on the basis of the number of Fulltime students in each program. This approach was deemed appropriate since Jones reasoned that increasing the number of students at KCC would result in higher overhead costs (e.g., more facilities would be needed, more indirect support costs would be incurred, etc.). However, Jones is beginning to question the accuracy of the traditional approach since it results in a similar full cost per student for the arts and technology programs, which she feels doesn't make sense. Based on her knowledge of the programs, Jones feels that the technology program is probably more expensive to deliver than the arts program, but this does not come through in the traditional costing approach. ad 12:23 100 . te Jones recently attended a seminar on management techniques being used by leading educational institutions that, among other topics, covered the basics of the ABC approach. She likes the idea of being able to assign indirect costs to academic programs on the basis of how much of the support activity resources are consumed by each program. If Jones's instincts are correct in that some programs consume more resources of certain activities than others, this could have a significant impact on the overhead costs assigned to each under the ABC approach. Upon returning to KCC, Jones decides to implement ABC. She, along with Assistant CFO James West, begins by identifying the key activities used to support the teaching programs. Rather than getting too detailed with respect to identifying activities in the initial implementation, Jones decides to keep the process manageable and comes up with six key activities. Next, based on a series of interviews with various 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 resources consumed 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: 20% Activity Central administration Information systems technology Student counselling services Human resources Library operations Registrar's office Total Resource Distribution across Activities Administrative Facilities Office 20% 5% 20% 20% 15% 5% 5% 5% 10% 5% 5% 20% 65% 35% 25% 5% 15% 100% 100% 100% Working with key personnel from each of the six activities shown above, Jones and West then identify the activity measure and the quantity of that measure used for each teaching program. Fortunately, KCC implemented an enterprise resource planning system a few years ago, which is already tracking much of the information needed regarding the activity measures and the specific quantities for each academic program: Activity Measure Professional Arts Technology Central administration Hours spent on program 6,300 7,350 7,350 Information systems technology Processing hours 5,800 2,700 11,500 Student counselling services Number of students counselled 144 92 Human resources Number of admin.staff and faculty members 21 15 Library operations Number of library circulations 7,000 3,500 3,500 Registrar's office Fulltime students 2,000 1,000 1,000 164 14 4. a) Complete the first-stage allocation of overhead costs to academic programs, using Exhibit 7-7 as a guide. b) Calculate the activity rates for each of the activity cost pools, using Exhibit 7-8 as a guide. (Show, not round, your answers to 2 decimal places.) c) Using the activity rates calculated in (b), complete the second stage allocation of overhead to academic programs d) Calculate the total cost per student (direct costs plus overhead) of operating each academic program. (Show, not round, your answers to 2 decimal places. The number of professional studies students has increased by 30% The number of arts students has decreased by 60% The number of technology students has increased by 40% Office expenses and facility overhead costs has been decreased by 25% Administrative and Facilities Resources have been redirected to Information Technology and Student Counselling evenly, by the reduction in library and central administration. The reduction in each of these activities is by 15%. These redirections are only for Administrative costs. 45% of Facility resources have be redistributed from Library operations and has been reallocated to Student Counselling and Information Technology by 10% and 30% respectively. Counselling is expected to show a decrease in the number of Arts students seen by 15 students and is expected that these 15 student spaces will be used by Professional program students. The total number of library circulations is expected to decrease by 30% for all programs