Question

Capital University, a mid-size university located in a capital city has approximately 10,000 students studying in four departments. While the University’s goal is not to make a profit, it is also important that the University does not operate at a loss. The only source of revenue is tuition and government grants. The government gives the University $14,000 a year for each full-time student.

Faculty:	Arts	Science	Engineering	Business
Number of Courses	120	200	150	150
Number of Students	4,800	2,000	600	2,700

Other Information:

• Each Course is only offered once each year
• Each student is enrolled in 10 classes per year
• Each faculty member is paid $120,000 per year and teaches 6 courses per year
• Total student support costs are $139,992,700 per year. These cost include student services and administration. Each student generally requires an equal amount of support.
• Building costs are $12,400,000 per year. Costs are equal for each class.
• Other costs $17,000,000 (Science labs $10million, Business trading room $2million, Engineering labs $5million).

REQUIRED

1. Using Activity Based Costing, calculate how much tuition should be charged to students in each faculty.

Answer 1

A.ABC rate calculation

Costs	Cost drive	Cost pool	Number of cost driver	ABC rate
Faculty salary	Number of faculty		103.333	120000(Directly given
Student support cost	Number of students	139992700	10100	13860.67
Building costs	Number of classes	12400000	101000	122.77

Note

1.Number of faculty

Total number of course offered = 120+200+150+150 =620

Each faculty teaching course per year = 6 courses

Number of faculty =620/6 =103.33

2.Total number of students =4800+2000+600+2700=10100

3.Total class per year =Each student is enrolled in 10 classes per year

=Total student*10=10100*10=101000

B) Cost allocation Statement

Cost	Arts	science	Engineering	Management
Faculty salary	(120000*(120/6) 2400000	(120000*200/6) 4000000	(120000*150/6) 3000000	(120000*150/6) 3000000
Student support cost	(13860.67*4800) 66531216	(13860.67*2000) 27721340	(13860.67*600) 8316402	(13860.67*2700) 37423809
Building costs	(122.77*48000) 5892960	(122.77*20000) 2455400	(122.77*6000) 736620	(122.77*27000) 3314790
Other costs		10000000	2000000	5000000
Total costs	74824176	44176740	14053022	48738599
Less:Grant income for each student	(4800*14000) 67200000	(2000*14000) 28000000	(600*14000) 8400000	(2700*14000) 37800000
Total fees to be charged	7624176	16176740	5653022	10938599
Fees to be charged per student(Total fees/Total number of students)	1588.37	8088.37	9421.7	4051.33