Cost Management

Q.1.

Atlantic University has eight schools, 350 faculty members, and 20,000 students. An analysis of the university’s cost structure yielded the following annual cost estimates.

The university-sustaining cost level is $20,000,000, which includes basic building costs and administrative salaries such as those of the president and the admissions officers. Committed costs at the university level increase, in the long run, by $20,000,000 for each new school added and by $1000 for each additional student enrolled.

The school of Business is a school in Atlantic University. The school-sustaining cost level is $5,000,000. The area-sustaining cost level is $50,000. Committed costs in the School of Business increase, in the long run, by $200,000 for each faculty member added and by $500 for each unit of student capacity added. Planners at Atlantic University estimate that the total flexible costs per student amount to $600. (All the costs above are annual costs.)

Each faculty member teaches five courses and each student takes nine courses per year.

The Accounting Area in the School of Business has 30 faculty members and is offering 150 courses with, on average, 60 students in each course. Accounting students only take accounting courses.

Required

1) What is the total annual cost per accounting student?

2) What is the total annual cost of the accounting program?

3) The dean of the School of Business is considering a shift in faculty workload to provide more incentive for research. The shift will result in each faculty member teaching four courses per year. The number of student course enrollments will be...