Question

Problem 5-17A Using activity-based costing to improve allocation accuracy LO 5-1,5-3 Adams Academy is a profit-oriented education business. Adams provides remedial training for high school students who have fallen behind in their classroom studies. It charges its students $540 per course. During the previous year, Adams provided instruction for 1,000 students. The income statement for the company follows: bed Revenue Cost of instructors Overhead costs Net income $ 540,000 (341,000) (182,500) $ 16,500 ok nces The company president, Andria Rossi, indicated in a discussion with the accountant, Sam Trent, that she was extremely pleased with the growth in the area of computer-assisted instruction. She observed that this department served 300 students using only three part- time instructors. In contrast, the classroom-based instructional department required 28 instructors to teach 700 students. Ms. Rossi noted that the per-student cost of instruction was dramatically lower for the computer-assisted department. She based her conclusion on the following information: Adams pays its part-time instructors an average of $11,000 per year. The total cost of instruction and the cost per student are computed as follows: Computer-Assisted Type of Instruction Number of instructors (a) Number of students (b) Total cost (c = a × $11,000) Cost per student ( b) 300 $ 33,000 $ 110 Classroom 28 700 $308,000 $ 440 < Prey 2 of 3 Next >

Answer 1

	Type of Instruction			Computer-Assisted		Class-Room
	Total Cost			$163,350		$360,150
	Cost per student			$544.50		$514.50

Total cost for Computer-Assisted

=Salary of Instructors + Overhead directly traceable to computer-assisted activities + Remaining proportionate overhead cost

= ($11,000 $\times$ $300) + $ 108,000 + ($74,500 $\div$ 1000) $\times$ 300 = $ 33,000 + $ 108,000 + $ 22,350

= $ 163,350.

Computer Assisted Cost per student = Total Cost $\div$ 300 = $ 163,350 $\div$ 300 = $ 544.50

Total cost for Classroom = Salary of Instructors + Remaining proportionate overhead cost

= ($ 11000 $\times$ 28) + ($74,500 $\div$ 1000) $\times$ 700

= $ 308,000 + $ 52,150 = $ 360,150

Class room Cost per student = Total Cost $\div$ 700 = $ 360,150 $\div$ 700 = $ 514.50