Study of student costs using activity based costing methodology - aair

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.