QUT - For you

QUT eX provides Professional Executive Education such as short courses and

masterclasses. Professor Brett Heyward is the professor of practice that oversees the
provision of courses.

QUT eX offers two basic training packages to government departments: two-day

short courses covering topics such as leadership skills, managing change and
learning organisations, and five-day courses in areas such as strategic management,
supply chain management and developing performance measurement systems.

At the end of the year, Professor Heyward reviewed the total costs with a view to
setting prices for the coming year. Over the past 12 months, QUT ex ran 40 x two-
day courses, with an average of 50 participants, and 60 five-day courses, with an
average of 30 participants. Total costs amounted to $1 003 200. Professor Heyward
decided to base prices for the coming year on the cost per day for last year plus a 20
per cent profit margin.

Before setting these prices, Professor Heyward had a discussion with QUT’s
management accountant who suggested that activity-based costing would provide a
more accurate estimate of the cost of the two types of courses. With her help,
Professor Heyward identified the following activities and costs for last year:
 Activity Activity cost Activity driver Quantity of activity
driver
Advertise courses $48 200 Number of courses 100
Enrol participants 19 000 Number of 3 800
participants
Staff costs 570 000 Number of days 380
Hire Fee B Block 38 000 Number of days 380
Hire audio visual 95 000 Number of days 380
equipment
Produce handouts 38 000 Number of 3 800
participants
Catering 195 000 Number of person- 13 000
days
Total costs $1 003 200

1. Estimate the costs of a two-day course and a five-day course, using the
‘average cost per day’ approach.
2. Estimate the cost of a two-day course and a five-day course, using activity-
based costing.
3. Which costs out of those estimated in requirements 1 and 2 do you think
would provide a more reliable basis for cost-plus pricing? Be prepared to
explain your answer.

Solution

1. Cost per course based on average cost per day:

Total number of days on which courses were run =(40×2)+(60×5)

= 380 days
Total cost = $1 003 200

Cost per day=$1 003 200/380 days=$2 640 per day

Cost of two-day course = $2 640 × 2 = $5 280
Cost of five-day course = $2 640 × 5 = $13 200
 Two Day Course
Activity driver Cost per unit of activity Quantity of activity Activity
driver driver cost
Advertise $482 per course 1 course $ 482
courses
Enrol $5 per participant 50 participants 250
participants
Hire $1 500 per day 2 days 3 000
presenters
Hire premises $100 per day 2 days 200
Hire $250 per day 2 days 500
audiovisual
equipment
Produce $10 per participant 50 participants 500
handouts
Provide $15 per person per day 100 person-days 1 500
lunches
Total cost $6 432

Five Day course

Activity driver Cost per unit of activity Quantity of activity Activity

driver driver cost
Advertise $482 per course 1 course $ 482
courses
Enrol $5 per participant 30 participants 150
participants
Hire $1 500 per day 5 days 7 500
presenters
Hire premises $100 per day 5 days 500
Hire $250 per day 5 days 1 250
audiovisual
equipment
Produce $10 per participant 30 participants 300
handouts
Provide $15 per person per day 150 person-days 2 250
lunches
Total cost $12 432

Double Check costs make sense:

40 x $6432 = 257,280

60 x $12,432 = 745,920

Total cost of all courses = $1,003,200