Saturday, 29 November 2014

State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered. The dean is considering closing down the BBA program because the analysis, which follows, shows a loss. Tuition increases are not possible. The dean has asked for your advice. If the BBA degree program is dropped, school administration costs are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs. STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE Degree Income Statement For the Academic Year Ending June 30 Revenue $ 350,000 Costs Advertising—BBA program 12,000 Faculty salaries 195,000 Degree operating costs (part-time staff) 35,000 Building maintenance 31,000 Classroom costs (building depreciation) 60,000 Allocated school administration costs 31,600 Total costs $ 364,600 Net loss $ (14,600) Required: What revenues and costs are probably differential for the decision to drop the BBA program?

State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered. The dean is considering closing down the BBA program because the analysis, which follows, shows a loss. Tuition increases are not possible. The dean has asked for your advice. If the BBA degree program is dropped, school administration costs are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs.

STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE
Degree Income Statement
For the Academic Year Ending June 30
  Revenue $ 350,000   
  Costs    
    Advertising—BBA program   12,000   
    Faculty salaries   195,000   
    Degree operating costs (part-time staff)   35,000   
    Building maintenance   31,000   
    Classroom costs (building depreciation)   60,000   
    Allocated school administration costs   31,600   
 

  Total costs $ 364,600   
 

  Net loss $ (14,600)  
 



 


Required:
What revenues and costs are probably differential for the decision to drop the BBA program?