Question

P9.29    Sales and labour budgets: university

Perth Business University (PBU) is preparing its budget for the upcoming academic year. This is a specialised private university that charges fees for all degree courses. Currently, 15 000 students are enrolled on campus. However, the university is forecasting a 5 per cent growth in student numbers in the coming year, despite an increase in fees to $3000per subject. The following additional information has been gathered from an examination of university records and conversations with university managers:

• Perth Business University is planning to award scholarships to 180 students, which will cover their fees.
• The average class has 80 students, and the typical student takes 4 subjects per semester. Perth Business University operates 2 semesters per year.
• The average academic staff salary is $100 000 per annum including oncosts.
• PBU’s academic staff are evaluated on the basis of teaching, research, administration and professional/community service. Each of the academic staff teaches the equivalent of three subjects during the academic year.

Required:

1. Prepare a revenue budget for the upcoming academic year.

2. Determine the number of staff needed to cover classes.

3. Assume there is a shortage of full-time academic staff. List at least five actions that PBU might take to accommodate the growing student numbers.

4. You have been requested by the university’s deputy vice chancellor (DVC) to construct budgets for other areas of operation (such as the library, grounds, cafeteria, and maintenance). The DVC noted: ‘The most important resource of the university is its academic staff. now that you know the number of staff needed, you can prepare the other budgets. Academic staff are indeed the key driver—without them we don’t operate’. Does the DVC really understand the linkages within the budgeting process? Explain.

Answer 1

1. Revenue Budget for the upcomin year

Current number of students = 15000

Add- Growth (5%) = 750

total number of student = 15750

Less- Tuition fee scholarship =180

Total tuition fees paying students = 15570

Subjects taken per student during the academic year= 4 x 2= 8

fees per subject= $3000

Total fees paid by each student during the whole year = 8 x 3000 $= $24000

total tuition fees received from all students/ year = 15570 x 24000= $ 373,680,000

Budgeted annual income is $ 373,680,000

Part 2- number of staff required to cover the class-

Each student taka 4 class per semester.

Therefore total number of classes taken per student per year = 4 x 2=8

total number of students= 15750

Student per class= 80

total number of classes to be conducted= (15750 x 8)/ 80 =1575

No. of classes taken by each academic staff = 3

Therefore total number of academic staff required = 1575/3 = 525

total number of academic staff required is 525.

Part 3- five actions that can be undertaken to accomodate the students are as follows-

1. Use graduate teaching assistant as academic staffs.

2. Hire some part-time instructors

3. Increase the faculty teaching load

4. Reduce number of sections and increase the class capacity

5. Shift courses to another term.

Part 4- I dont think the DVC does understand the linkage within the budgeting process. Unfortunately not. The number of students and the annual tuition revenue are really the key factors. This is analogous to sales which is the starting point in the bugdeting process.