Study of student costs using activity based costing methodology - aair

More documents

Recommendations

Info

enables management to effect long term changes to cost behaviours and is a vital tool in the establishment of operational budgets using a bottom-up approach. 16 The approach adopted by Ernst and Young was based on the following ABC model. 17 The assignment methodology involved six stages: 1. Interview program to determine activities 2. Accounts analysis and creation of cost pools 3. Establishment of cost drivers 4. Survey of faculty costs 5. Development of ABC model 6. Analysis of student costs 1. Interview Program The initial phase in the study involved a program of interviews with administrative and support department managers and deans of all faculties to obtain a detailed knowledge of the activities of each department and faculty and an understanding of what drives the cost of each activity. The life cycle of activities provided at the commencement of the study gave an insight into UTS activities and provided a framework for the interview program. The interview program also enabled the study team to seek the opinion of deans and managers regarding the effect on costs of individual activities of part-time versus full-time students. 16 Ernst and Young, Study of Part-time Student Costs, University of Technology, Sydney, March 1991, pp. 3-4. 17 Ibid., p. 4.
2. Accounts Analysis and Creation of Cost Pools After the activities of the support departments had been identified, the accounts were reviewed to determine the extent to which these activities are identified in the UTS Chart of Accounts. Where activities were reflected in the accounting system, cost pools could be clearly determined by reference to the corresponding department in the account. Where the activities were not reflected in the Chart of Accounts it became necessary to create cost pools. Where some organisational units were involved in several distinct activities, but all financial information was combined under the one unit, eg, Student Administration Unit, it was necessary to breakdown these units into their constituent activities based on a staff activities analysis. In the final analysis, it was crucial to the validity of the study that all operating expenditure of UTS was recognised. 3. Establishment of Cost Drivers Under the ABC methodology, once the activities undertaken by an organisation are established, it is necessary to determine the events that give rise to, or ‘drive’ the activity. This event is termed the cost driver. In some instances it is necessary to develop a two stage basis of cost allocation using primary and secondary drivers. Secondary drivers are those events which give rise to activities being undertaken that are directly attributable to the product or service being supplied. Primary drivers are those not directly attributable to the product or the service being supplied. It is necessary to ensure that non-financial data collected regarding cost driver volumes is related to the level of activity as reflected in the financial data. Where hard numerical data is not available, management estimates, or information from surveys, or data from group consensus may be required. Following the interviews with departmental heads, cost drivers were determined in order to allocate costs of support departments to faculties. The pattern of resource consumption for each activity was analysed and possible cost drivers were evaluated. The final choice of cost drivers depended upon the availability of reliable information. An example of the cost drivers used in the study is shown in the following table. 18 Activities Security Communications Insurance Cleaning Heating & lighting Rates and rent Estates Financial services Primary cost driver Floor space # of staff FTE Tech estimate Floor space Floor space Actual Floor space % of total budget Primary allocation Facs & Dept Facs & Dept Facs & Dept Facts & Dept Facts & Dept Facts & Dept Facts & Dept Faculties Secondary cost driver # of students Time of academic staff # of students # of students # of students # of students # of students # of students Secondary allocation Students Students Students Students Students Students Students Students 4. Survey of Faculty Costs The preceding phase details the process used to allocate the cost of support activities to students, which amount to approximately 35% of the total University costs. The remaining 65% is accounted for by faculty costs, which include faculty part-time academic salaries, full-time academic salaries, faculty support staff salaries, and non salary costs. Research grants were also treated as faculty costs although the accounting system treats them as a centralised expenditure. With such a large proportion of University expenditure occurring within the faculties, it was crucial to review these costs and determine a means of allocating them to the student categories (full-time, part-time, undergraduate and postgraduate students). One of the difficulties the consultants experienced in costing university education was related to the diversity of activities undertaken by academic staff. Whilst part-time academic staff are paid only for direct lecturing hours, permanent academics only lecture for approximately 30% of their working time. To establish a basis for determining faculty costs, a faculty activity survey was developed and its results used as a critical component in the study. 18 Ibid., Appendix C.
Page 1 and 2: Study of student costs using activi
Page 3 and 4: Relative Funding Model: Relative te
Page 5: Life Cycle of Institutional Activit
Page 9 and 10: Explanation of the secondary cost a
Page 11: Many of these points highlight not

Study of student costs using activity based costing methodology - aair

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?