allocation of costs to activities unused capacity harmon acade 268590

Allocation of costs to activities, unused capacity. Harmon Academy, a private school for boys, serves 500 students: 200 in the middle school (grades 6—8) and 300 in the high school (grades 9—12). Each school has its own assistant principal, and there is one principal, Brian Smith, for all of Harmon Academy For any single student, almost all of Harmon’s costs are indirect Harmon currently has five indirect cost categories, which are listed in column A of the following table. Smith wants to develop an activity based costing system for the school. He identifies four activities—academic instruction, administration, sports training and community relationships—related to the educational enterprise, which are shown in columns B, C, D, and Eat the following table. Smith and his team identify number of students as the cost driver of academic instruction and administration: costs, and the number of team sports offered by the school as the cost driver of sports training costs. The cost of maintaining community relationships—dealing with the town board and participating in local activities—is a facility sustaining cost that the school has to incur each year. This table shows the percentage costs in each line item used by each activity.

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If you want to use Excel to solve this exercise, go to the Excel Lab at www.prenhall.com/horngren/cost13e download the template for Exercise 5 22.

1. What is the overall cost of educating each student? Of this cost, what percentage is the cost of academic instruction, of administration’?

2. Smith is dismayed at the high cost of sports training. Further examination reveals that $300,000 of those costs are for ice hockey, a sport pursued by a total of 40 students. What would the overall cost of educating each student be if the ice hockey program is eliminated and its cost saved?

3. For the 2010 school year, Harmon charges an annual fee of $1,000for any student who wants to play ice hockey. As a result, 10 of the less motivated students drop the sport. Assuming the costs of the school in 2010 are the same as in 2009, what is the overall cost of educating each student in 2010?

4. Consider the costs of the academic instruction activity and assume they are fixed in the short run. At these costs, Harmon could serve 600 students. What is the cost of the academic instruction resources used by Harmon’s current 500 students? What is the cost of unused academic instruction capacity? What actions can Smith take to reduce the cost of academic instruction per student in the short run in the longrun?