Paragon University operates an extensive and an expensive registration, testing, and counseling center, through which all students are required to pass through when they enter the University. The registration effort’s costs (for the most part) are almost impossible to allocate based upon which students require time, effort, etc. The cost of this center is approximately 15% of the total costs of Paragon. This department engages in no other activities than the registration of students. Paragon is interested in determining the profitability of the three technical departments it operates. Paragon has the perception that some departments are more profitable than others, and it would like to determine an appropriate method of allocating the costs of this registration center.
Required:
Recommend to Paragon University a method (or methods) of allocating the costs of registration to the three departments.
Answer:
The joint costs of the registration effort could be allocated based on physical volume or the sales (tuition) dollars of each department.
Volume Allocating on volume would be based not upon physical measures, but upon the number of credit hours each of the three departments offer each semester. If the ratio of credit hours for the three departments were 25%, 45%, and 30% then the costs would be allocated based upon these ratios.
Sales Dollars It is possible that some departments charge more per credit hour than others. In this case it might be appropriate to allocate the costs based upon the total tuition revenues of each department.
