On Seat Cost Computation

Prof. Rafael Pulmano of the Business Division (National Campus) has some ideas about seat cost computation.  Based on these ideas he came up with a brief presentation which he later shared with the CAC and the PRC.

A pdf copy of this presentation is uploaded in this wiki.  (See SOME-IDEAS-ABOUT-SEAT-COST.pdf)

PROPOSED FORMULA

Seat Cost = Total Program Cost ÷ Total number of students enrolled in the program for the period under consideration

Program Cost = Program Direct Costs + Allocated Program Indirect Costs

PROPOSED FORMULA

Seat Cost = Total Program Cost ÷ Total number of students enrolled in the program for the period under consideration

Program Cost = Program Direct Costs + Allocated Program Indirect Costs

THIS FORMULA RECOGNIZES THAT –

Program costs are incurred at different levels within the organization. Hence, we have:

1. Organizational (or facilities) level costs
2. Department level costs
3. Division level costs
   1. Costs incurred at these different levels are either direct or indirect cost in relation to a cost object, or in this case, a program.
      1. Direct costs are those that can be clearly or conveniently traced to the program. Example: Faculty costs.
      2. Indirect costs cannot be clearly or conveniently traced to the program, and are therefore allocated to the program using some systematic and rational allocation bases. Examples: Supplies, Utility costs.

DIVISION COSTS

1. In the budgeting process, funds are allocated to divisions, not programs.
2. If a division offers only one program, then the division cost = program cost.
3. However, if a division offers more than one program, then the division cost must be allocated among those programs.
4. About 90% of a division's budget is related to faculty costs (salary and benefits).
   1. Knowing how much of this costs can be directly traced to a program is an important step in finding the cost of that program.
      1. If a faculty teaches only courses under a single program, then that faculty's costs = 100% part of that program cost.
      2. However, if a faculty teaches courses under different programs, then that faculty's costs must be allocated among all those programs.
5. The remaining 10%, more or less, of the division's budget relate to Supplies, Reference and training materials, Printing, Communication, Membership dues & subscription, Equipment/Computer, Furniture and Fixtures, etc.
   1. Again, if the division offers more than one program, these remaining costs must also be allocated among those programs.
   2. However, not much can be gained by calculating precisely how much supplies is actually being used by each program.
   3. A simple, arbitrary allocation ratio can be adopted and used without significantly distorting the true program cost.  For example, a division that has four programs can assign 1/4 or 25% of the cost of supplies to each program.