(Solved): Kolbec Community College ( KCC ) has 4,000 full-time students and offers a variety of academic prog ...

Kolbec Community College ( $$\mathrm{KCC}$$ ) 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 occounting, 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 kechnology, 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: $$t$$ 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 bverhead costs at KCC are as follows: 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 tacilities 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 doesnt 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. 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: \begin{tabular}{|l|r|r|r|} \hline \multicolumn{1}{|c|}{} & \multicolumn{3}{|c|}{ Resource Distribution across Activities } \\ \cline { 2 - 5 } & Administrative & Facilities & Office \\ \hline Central administration & $$20\%$$ & $$5\%$$ & $$20\%$$ \\ \hline Informaiton systems technology & $$20\%$$ & $$15\%$$ & $$20\%$$ \\ \hline Student counselling services & $$5\%$$ & $$5\%$$ & $$5\%$$ \\ \hline Human resources & $$10\%$$ & $$5\%$$ & $$5\%$$ \\ Library operations & $$20\%$$ & $$65\%$$ & $$35\%$$ \\ Registrar's office & $$25\%$$ & $$5\%$$ & $$15\%$$ \\ \hline Total & $$100\%$$ & $$100\%$$ & $$100\%$$ \\ \hline \end{tabular} 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: \begin{tabular}{|l|l|r|r|r|} \hline Activity & Measure & Professional & Arts & Technology \\ \hline Central administration & Hours spent on program & 6,000 & 7,000 & 7,000 \\ \hline Information systems technology & Processing hours & 5,800 & 2,700 & 11,500 \\ \hline Student counselling services & Number of students counselled & 144 & 92 & 164 \\ \hline Human resources & Number of admin. Staff \& faculty members & 21 & 15 & 14 \\ \hline Library operations & Number of library circulations & 7,000 & 3,500 & 3,500 \\ \hline Registrar's office & Fullime students & 2,000 & 1,000 & 1,000 \\ \hline \end{tabular} Required: 1. Using the traditional approach to assigning overhead costs to academic programs: a. Calculate the predetermined overhead rate. b. Assign the overhead costs to each academic program using the predetermined rate. c. Calculate the total cost per student (dired cost splus overhead) of operating each academic program. 2. Using ABC complete the following requirements: a. Complete the first-stage allocation of overhead costs to academic programs, using Exibit 7-7as a guide. b. Calculate the activity rates for each of the activity cost pools, using Exhibit 7-8 as a guide. (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. 3. Based on the results of (2), calculate the total cost per student (direct costs plus overhead) of operating each academic program. (Pound your answers to 2 decimal places.) Team \#: Team Members Participated: Req. 1: Using the trditional approach to assigning overhead costs to academic programs: 1.a. Predetermined overhead rate: \begin{tabular}{|l|l|} \hline Total overhead costs & \\ \hline Full-time students & \\ \hline \end{tabular} per student 1.b Overhead costs assigned to academic programs: Professional studies: $$\mathrm{OH}$$ rate $$\mathrm{x}$$ \# of stu. Arts: Technology: 1.c Total cost per student: Full-time students Cost per student Team Members Participated: Using $$\mathbf{ABC}$$, complete the following requirements: Complete the first-stage allocation of overhead costs to academic programs. Caculate the activity rates for each of the activity cost pools. (Round your answers to 2 decimal places.) \begin{tabular}{l|l|l|l|l|} \hline Activity Cost P?ol & Total Cost & Total Activity & & Activity Rate \\ \hline Central administration & Program hours & \\ \hline Information systems technology & Processing hours & per hour \\ \hline Student counselling services & Stu. counselled & per hour \\ \hline Human resources & \# of faculty \& staff & per student \\ \hline Library operations & Circulations & member \\ \hline Registrar's office & Full-time students & circulation \\ \hline \end{tabular} Using the activity rates calculated in (b), compute the second-stage allocation of overhead to academic programs: Professional Team \#: Team Members Participated: Req. 3: Based on the results of (2), calculate the total cost per student (direct costs plus overhead) of operating each academic programs. (Round your answers to 2 decimal places) Professional Professors' salaries Administrative salaries \begin{tabular}{r|r|r|r|} Studies & Arts & Technology & Total \\ \hline & & $$\$$$ & 0 \\ & & 0 \\ & & & 0 \\ & & & 0 \\ \hline & & & 0 \\ \hline & & & 0 \\ \hline$$\$0$$ & $$\$0$$ & $$\$0$$ & 0 \\ \hline \end{tabular} Full-time students Cost per student