Question

Your assignment consists of different question styles including discussion questions, reports, exercises, problem questions and spreadsheet questions. It assesses learning outcomes as listed in the assignment rationale below.

The purpose of this assignment is to continue to develop skills in costing systems with an emphasis on the role of control in managing the production of goods and services efficiently in the workplace. Each question builds on the knowledge gained through the first assignment to develop the concepts of management accounting control through costing. Each question uses realistic data and professional practices similar to that found in workplaces.

Question 1: Budget (20 marks in total)

Resort Island University 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 % growth in student numbers in the coming year, despite an increase in fees of $3,500 per subject. The following additional information has been gathered from an examination of the university records and conversations with university managers:

• Resort Island is planning to award scholarships to 150 students, which will cover their fees.
• The average class has 80 students, and the typical student takes 4 subjects per semester. Resort Island operates 2 semesters per year.
• The average academic staff salary is $120,000 per annum including on-costs.
• Resort Island'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 Resort Island 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 library, grounds, cafeteria, and maintenance). The DVC noted: 'The most important resource of the university is 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 with the budgeting process? Explain.

Answer 1

1. Number of staff needed to cover classes -

Total number of students next year = 15000 + 5% of 15000 = 15750

Number of students per class = 80

Number of classes required = 15750/80 = 196.875

Number of subjects per year = 4 (per semester) * 2 (semesters in year) = 8 subjects per year

Number of staff required for 8 subjects, i.e. per class = 8/3

Total number of staff required = 196.875 * 8/3 = 525 staff members

2. Revenue Budget -

Expected revenue from student fee per annum - (15750 (total number of students) - 150 (scholarship students)) * 3500 (fee per subject) * 8 (number of subjects per year) = 15600 * 3500 * 8 = $436800000

Expenses on staff salary = 120000 (average salary per staff member) * 525 (expected number of staff members) = $63000000

Net revenue after expenses = 436800000 - 63000000 = $373800000

3. Budget -

Net Revenue after expenses of staff = 373800000

Budget allocation to library = 15% = $56070000

Budget allocation to ground = 15% = $56070000

Budget allocation of cafeteria = 10% = $37380000

Budget allocation of maintainance = 10% = $37380000

Remaining 50% of revenue can be shown as profit