Solution a Transfer price 120008 1 20 1200 Number of undergraduate enrollments

Solution a transfer price 120008 1 20 1200 number of

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Solution: a. Transfer price [$12,000/8 × (1 - .20)] $1,200 Number of undergraduate enrollments 2,000 Current tuition transfer to Business School $2,400,0 00 Total undergraduate course enrollments/year (6,000 × 8) 48,000 Undergraduate student services $9,600,0 00 Student services per course enrollment $200 Student services charged to Business School ($200 × 2,000) $400,000 Revised tuition transfer to Business School $2,000,0 00 b. The CAS proposal will increase the CAS budget by $400,000 and will reduce the number of courses the business school offers. By how many courses, we don't know. Ultimately, the question comes down to what is the opportunity cost of providing the business course? Presumably, the business school does not have excess capacity among its teaching staff. The undergraduate courses will have to be staffed at some incremental cost to the business school. These staff require additional office space and support (e.g., secretarial, photocopying, computers, etc.). Therefore, the opportunity cost to the business school is these incremental costs to them. Unless they hire faculty of comparable quality to their existing faculty, there will be a brand-name loss of business school reputation. The current scheme gives the business school the incentive to offer undergraduate business courses, which presumably increases the demand for the undergraduate degree. One advantage of the current system is it is fairly simple to administer. One problem with the CAS dean's proposal is how does one determine the "etc." For example, what prevents the CAS dean from classifying a math professor as spending 30 percent of her time advising students and thereby allocating 30 percent of her salary to "undergraduate student services" charged to the business school? How does one prevent the allocated costs from creeping up as the CAS dean reclassifies more and more expenses as "student services"?
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Exercises Preparation for the Exam 13.03.2020 6 c. Some possible arguing points include: (i) Business school courses have a higher opportunity cost than undergraduate courses in the sense that B-School faculty have high salaries and hence a higher opportunity cost of time; the opportunity cost of B-School faculty teaching undergraduate courses is similarly higher. If Ph.D. students teach the undergraduate courses, they too have an opportunity cost of their time because teaching lengthens the time until they graduate and begin earning higher salaries. (ii) Undergraduates taking a B-School course may use B-School services such as the computing center, placement services, business library, and executive seminars. This use reduces the amount of such services available to the MBA population and imposes an opportunity cost on the B-School. (iii) Tuition at Eastern University can only be sustained at the higher level of $12,000 per year because undergraduates know that the undergraduate program is a back door way into "cheap" (to them) B-School courses. (iv) Take the $9.6 million student services and split it into fixed and variable cost components. Allocate to the business school only its share of the variable cost component.
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