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

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
• 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

• In the budgeting process, funds are allocated to divisions, not programs.
• If a division offers only one program, then the division cost = program cost.
• However, if a division offers more than one program, then the division cost must be allocated among those programs.
• About 90% of a division's budget is related to faculty costs (salary and benefits).
  • Knowing how much of these costs can be directly traced to a program is an important step in finding the cost of that program.
    • If a faculty teaches only courses under a single program, then that faculty's costs = 100% part of that program cost.
    • However, if a faculty teaches courses under different programs, then that faculty's costs must be allocated among all those programs.
• 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.
  • Again, if the division offers more than one program, these remaining costs must also be allocated among those programs.
  • However, not much can be gained by calculating precisely how much supplies is actually being used by each program.
  • 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.

WORK SHEETS – A COMPARATIVE ANALYSIS

Prof. Pulmano made a comparative analysis of two work sheets that attempt to establish a viable formula for calculating program seat cost.  Rationale for his own proposed work sheet is included.  See Comparative Analysis.