State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered. The dean is considering closing down the BBA program because the analysis, which follows, shows a loss. Tuition increases are not possible. The dean has asked for your advice. If the BBA degree program is dropped, school administration costs are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs. STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree Income Statement For the Acadenie Year Ending June 30 Revenue $ 390,000 Costs Advertising BBA program 25,000 Faculty salaries Degree operating costs (part-time staft) 195,000 28,000 Building maintenance 31,000 classroon costs building depreciation) 70,000 Allocated school administration costs 51,500 Total costs $ 400,500 $(10,500) Net loss Required: a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to drop the BBA b. What will be the net effect on the SUBS contribution (profit) If the BBA program is dropped? Complete this question by entering your answers in the tabs below. Required A Required B Using the worksheet below, determine which revenues and costs are probably differential for the decision to drop the BBA program STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree income Statement Faculty salaries Degree operating costs (part-time staff) Building maintenance Classroom costs building depreciation) Allocated school administration costs Total costs Net loss 195,000 28,000 31,000 70,000 51,500 $ 400,500 $ (10,500) Required: a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to drop the BBA program b. What will be the net effect on the SUBS contribution (profit) if the BBA program is dropped? Complete this question by entering your answers in the tabs below. Required A Required B Using the worksheet below, determine which revenues and costs are probably differential for the decision to drop the BBA program STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree Income Statement Differential Revenues and Costs For the Academic Year Ending June 30 Revenue $ 6,000,000 Differential Costs Advertising - BBA program 225.000 foifferential Faculty salaries 3,060,000 Differential Degree operating costs 390,000 Differential Building maintenance 565,000 Differential Classroom costs 1,275,000 Differential Allocated school administration costs of Not differential Total costs $ 5,505.000 Net differential gain from BBA program S495,000 Required 8 > are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree Income Statement For the Academic Year Ending June 30 Revenue $ 390,000 Costs Advertising-BBA program 25,000 Faculty salaries 195,000 Degree operating costs (part-time staff) 28,000 Building maintenance 31,000 Classroom costs (building depreciation) 70,000 Allocated school administration costs 51,500 $ 400, 500 $ (10,500) Total costs Net loss Required: a. Using the worksheet below, determine which revenues and costs are probably differential for the decision to drop the BBA b. What will be the net Effect on the SUBS contribution (profit) if the BBA program is dropped? Complete this question by entering your answers in the tabs below. Required A Required B What will be the net effect on the SUBS contribution (profit) if the BBA program is dropped? SUBS contribution (profit) will decrease by $ 495.000
