MBA 5241E – Managerial Accounting

Assignment 3

Due Date: 11:59pm on Wednesday September 28.

Capital University has four departments. Each student takes 10 classes per year, and only takes
course in their own faculty. The only sources of revenue are tuition and government grants.
The University receives a grant of $10,000 a year for each student.

Costs:
Item Amount (in$) Note
Total Salaries $15,500,000 Each professor teaches 6 classes per year and all get paid the
same amount.
Building 13,020,000 Each classroom is the same size.
Student Support and 195,000,000 Each student generally requires an equal amount of support
Administration
Other 17,000,000 Science labs $10 million, Business trading room $2 million,
Engineering labs $5 million
Total $240,520,000
Faculty: Arts Science Engineering Business Total
Number of classes per year 120 198 150 150 618
Number of Students in Faculty 4,800 2,000 600 2,700 10,100

Student enrollment:

In order to break-even, the university currently estimates that tuition should be $13,814 per
student ($240,520,000 in costs divided by 10,100 students, less the government grant of
$10,000 per student)

REQUIRED
A. Using Activity Based Costing, calculate how much tuition should be charged per
student in each faculty in order for the university to break even.
B. Compare the results between the current methodology and cost per student based on
Activity Based Costing and briefly comment on who is likely being cross-subsidized.
C. Based on your analysis, what can the University do to lower the cost per student for
the faculty that has the highest overall cost per student?