Solved: Refer to the information in Exercise 1 23 The dean

of
Refer to the information in Exercise 1 23 The dean of

Refer to the information in Exercise 1-23. The dean of the Business School is considering
expanding the BBA program by offering an evening program in a nearby city. The program
would be the same size (in terms of students). The school’s CFO estimates that the combined
BBA revenue (on-campus plus the evening program) will be twice the current revenue, as
shown in Exercise 1-23. Because the evening program will be new, advertising expenses for the
evening session will be three times their current level. Faculty salaries will double. Degree
operating costs will increase by 50 percent. Building maintenance and classroom costs will re-
main unchanged, but classroom space will be rented at a cost of $100,000 per academic year.
School administration costs will increase by $10,000, and allocated school administration costs
(for both programs) will be $260,000 per academic year.
In Exercise 1-23, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000
Costs
Advertising—BBA program . . . . . . . . . . . . . . . . . 75,000
Faculty salaries . . . . . . . . . . . . . . . . . . . . . . . . . . 1020,000
Degree operating costs (part-time staff) . . . . . . . 130,000
Building maintenance . . . . . . . . . . . . . . . . . . . . . 185,000
Classroom costs (building depreciation) . . . . . . . 425,000
Allocated school administration costs . . . . . . . . . 215,000
Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,050,000
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (50,000)

Required
a. What will the contribution of the combined BBA program be given these estimates?
b. Are there other factors the dean should consider before making her decision?

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 Refer to the information in Exercise 1 23 The dean of

ANSWER
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