BUS 510 Final Q1 spring 2023 Smartgrad University (SU) has 1,000 full-time one-year Masters students in three distinct disciplines: Master of Business Administration (MBA), Masters of Science (MSc) and Masters of Art (MA). Traditionally, SU has allocated overhead costs to concentrations on the basis of the number of full-time students in each master program. However CFO, Don Dourian, believes that some master programs consume more resources of certain support activities than others. Don asks your team to use ABC costing to determine the total cost per student of operating each master program. Moreover, you are asked to give an explanation where cost per student of operating a concentration differs significantly from those calculated using traditional costing. The annual direct costs and number of full-time students for each concentration are as follows: MA MBA MSc Total Full-time students 500 300 200 1,000 Professors’ salaries $400,000 $300,000 $400,000 $1,100,000 Direct Administrative & other costs 290,000 220,000 280,000 790,000 Total direct cost $690,000 $520,000 $680,000 $1,890,000 Total annual overhead costs at SU are as follows: The percentage of the total general administrative, facility, and other expense resources consumed by each activity are determined based on interviews conducted with SU employees in departments identified below: Activities Administrative Salaries Facility Other General administration & admissions 35 % 35 % 40 % IT support 25 % 20 % 20 % Counselling services 15 % 10 % 10 % Library services 25 % 35 % 30 % Total 100 % 100 % 100 % The following are activity measures and the quantity of that measure used for each teaching concentration in each of the five activities: Cost Indirect Administrative salaries $ 400,000 Indirect facility costs 400,000 Other overhead costs 200,000 Total overhead costs $ 1,000,000 Activity Measure MA MBA MSc General administration Hours spent on concentration 2,600 3,000 3,200 IT support Processing hours 3,000 1,400 4,500 Counselling services # of students counselled 100 60 90 Library services # of library circulations 3,000 1,000 1,200
