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Chapter 10 - Strategy and the Master Budget
10-16
**An external risk factor not mentioned in case: economic–threats to funding sources. Note this is
included in COSO framework and may be mentioned in student solutions.
Internal Risk Factors (see Table 4)
Infrastructure–inadequate access to resources or poor allocation of resources
Personnel–obtaining employees with the right skill sets and capabilities; ethics codes, workplace
incidents (or volunteer site incidents), health and safety concerns, etc.
Process–process changes without adequate documentation, ineffective processes, poor supply chain
management (from constituent needs to volunteers, to in-kind resources)
Technology–insufficient capacity to handle IT needs, security breaches, inadequate data integrity, poorly
maintained systems.
Develop benchmarking procedures: Educate decision makers on items that
may be considered by charity-monitoring organizations
How can benchmarking be useful for CHI?
The advantage of benchmarking is to give management and board of directors a basis on which to
compare their performance. Benchmarking with other nonprofits can be particularly useful. CHI can
benchmark with other nonprofits that have:
• Similar size (size could be measured by total revenues, total budget, or total assets)
The next section provides a more complete discussion of possible strategies for developing and
implementing benchmarking practices.
Note to instructors: All metrics in Table 3 of CHI case are suitable metrics for
benchmarking and students should incorporate those into their solution.
Steps in Developing Benchmarking Practices
1. How do you obtain data from similar nonprofit organizations? Locate similar nonprofit
organizations that can be compared on several dimensions such as size (revenues, budget, assets,
number of employees, etc.), mission and location. Useful and relevant financial information on
exempt entities can be found on Form 990, Return of Organizations Exempt from Income Tax,
sites. Charity monitoring or watchdog organizations such as the Better Business Bureau and
Chapter 10 - Strategy and the Master Budget
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American Institute of Philanthropy (www.charitywatch.org) offer guidelines and disclose their
review of financial practices of individual nonprofit organizations. There are many possible
sources the students may describe in their solution–it is important that they cite appropriate
references.
2. Review financial metrics of comparable organizations. This allows financial professionals at
nonprofit organizations to have a working knowledge of what should be included on their firadar
screen”. Obtaining an understanding of key performance measures used by nonprofit
organizations helps managers and directors monitor the organization in a general financial sense
and may be useful in terms of alerting them to fired flags” or risky transactions. The following are
examples of useful metrics that may be used in the case solution:
than $35. Many sources that the students locate in preparing their responses will indicate ratios of
25% or more are appropriate. It is important that they document their source.
Revenue growth = the percentage change in annual revenues. This indicator helps assess
whether or not a nonprofit organization maintains or grows the resources used to carry out the
organizational mission. The ratios described above should be consistent or improve as revenue
grows.
Net asset levels = the amount of unrestricted net assets. Many charity monitoring organizations
suggest that this amount should be less than or equivalent to three times the annual budget.
3. Review compensation and benefits paid by comparable organizations. Obtaining and
documenting compensation levels of employees in similar organizations may be useful as salaries
can be a key expense for the nonprofit. Salary information can be obtained from salary surveys
targeted specifically at nonprofit organizations. In addition, Part V and Schedule A of Form 990
1The National Council of Nonprofit Associations provides links to many state-sponsored salary surveys.
www.ncna.org .
Chapter 10 - Strategy and the Master Budget
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4. Develop a relationship with finance professionals at a similar nonprofit (similar based on a
few key dimensions such as mission, budget size, organizational structure, etc.). This can help
both financial professionals in terms of a figo to source” for specific benchmarking and also help
Secondary Objectives of Case–link to professional development and
certification (CMA) issues
Stephanie needs to update herself on how boards the types of financial information
frequently requested by boards.
Case responses may include links to external resources such as Board Source or any nonprofit
organization dedicated to serving boards. Professional development courses on nonprofit issues may also
be helpful.
Stephanie should develop a plan for her own continued education and professional
development.
This question provides an opportunity for students to integrate the importance of professional
development, certification and networking with other professionals into their solution. This question links
to the primary goals of IMA and gives the students an opportunity to link the mission of the organization
into their responses.
Possible solutions include CMA certification, CPE courses, IMA chapter programs, networking with
finance directors from similar nonprofits.
Focus on certification: Students may review the requirements of CMA certification and
advantages of becoming certified. (See reference and certification section of the IMA website at
www.imanet.org).
Case responses may include personal plan for Stephanie in terms of CMA preparation, continuing
Chapter 10 - Strategy and the Master Budget
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10-4: Academic Advising at Bay State
(Source: Janice E. Bell and Shahid L. Ansari, Strategic Finance, September 2008, pp. 44-51. Note: this case was the
case used as the 2009 IMA Student Case Competition. The Student Case Competition is sponsored annually by the
IMA to provide an opportunity for students to interpret, analyze, evaluate, synthesize, and communicate a solution
to a management accounting problem.)
Case Requirements
1. What activities does the advising department perform?
2. How does the department spend its resources on these activities?
3. Why is COBAA’s performance poor relative to benchmarks?
4. How can COBAA improve Bay State’s performance regarding credit hours at graduation, FTF time to
graduation, and student satisfaction with advising?
Rice would also like the task force to make a budget recommendation for the 2008 academic year, with
specific suggestions about how to cut recurring operating costs by 15% while achieving the unit’s
mission.
COBAA’s base budget request for 2008 is provided in Table 7. Table 8 contains details of the COB’s
advising activities that the advising staff put together for further analysis, and Table 9 contains the
performance evaluations of the individual activities, where available.
In addition to the base budget request in Table 7, COB’s advising manager is requesting that your task
force also recommend an increase in the base budget to cover the following items:
1. The hiring of an ombudsman to take students’ complaints and assist students in resolving their issues.
The primary focus would be on lost paperwork, failure to meet deadlines for adding and dropping classes,
ability to maintain financial aid with unit reductions, help in arranging makeup work for missed classes,
2. The development of glossy brochures for each option and major to be distributed to high school and
community college students to assist outreach activities. These brochures should cost approximately
3. Expansion of A1 activities by 25% to include group sessions on the substitution and waiver process.
This should benefit all students who are cross-enrolled in another university, attending a study abroad
4. Coordinate with the Internship office to have firms offering internships attend the career fair with
information about internship positions. This would create additional event costs of approximately
Chapter 10 - Strategy and the Master Budget
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CASE TEACHING NOTES: ACADEMIC ADVISING AT BAY STATE
Background
Bay State, located in a major metropolitan area, is part of a five-campus public, state university system
established by the state legislature to provide the opportunity for a low-cost college degree to state
residents who graduate in the top 20% of their class. The university has an enrollment of approximately
39,000 full- and part-time students, equating to 28,000 full-time equivalent (FTE) students. Bay State’s
performance has declined in recent years, and upper management has charged its president to improve
performance while reducing overall spending by 15%. The president believes that the advising function is
partially responsible for the declining performance and wants help understanding advising activities and
creating a budget for next year.
This case is based loosely on over 40 years of experience with a state university system. The name and
size of the state system, metrics, and financial data have been changed, but the scenario describes some of
the actual conditions that existed in one advising operation.
This case is vague about the nature of the student analysis required. Students may approach the case with
some or all of the tools that are suggested, or they may use other analysis. Regardless of the tools that
students use for analysis purposes, it is important they move beyond technical analysis. Students should
approach the case from a strategic cost management perspective and make recommendations that focus on
the mission of advising. Appropriate student recommendations should address improving performance on
metrics monitored by the state legislature. Recommendations should be based on data and analysis, not
just figut” feelings.
The objectives of this case are:
1. To understand the importance of taking fia customer’s perspective” when analyzing operations.
(This case is particularly well-suited to accomplish this goal since students are the customers of
university advising and have very strong feelings about it.)
2. To have students analyze operations using many of the tools presented in a typical managerial
accounting class (activity-based costing, benchmarking, balanced scorecard, budgeting, etc.)
3. To have students integrate results from the various types of accounting analyses they perform
when making recommendations about the budget and operations.
4. To reinforce:
a. The difficulty of using benchmark data.
b. The need to allocate common resources to activities.
c. The necessity of understanding the strategic linkage between activities and performance goals.
d. The imprecise nature of budgeting given accounting analysis and political reality.
5. To underscore the importance of good judgment when there is no single correct solution based on
one perfect analysis of facts.
When teaching this case, we suggest that you cover the case over two 90-minute class periods. The first
class period should cover Bay State’s mission & key facts, the identification of issues and problems, the
selection of analysis students think relevant, performing activity costing for COBAA, and creating a
report that benchmarks their activities. In the second class period, we suggest that students review
COBAA’s mission and create a strategy map linking its activities to results. Then lead students through
an evaluation of activities performed, discussing whether they should be continued, improved, or
Chapter 10 - Strategy and the Master Budget
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dropped. This should ultimately lead to the creation of a budget for the upcoming year and perhaps a
balanced scorecard (BSC) for the advising function.
Mission & Key Facts about Bay State
To appreciate the role of advising at Bay State, it’s helpful to consider the mission of the state university
system and the performance metrics that the state legislature monitors. The mission of the state university
system is to provide educational opportunity to students who graduate in the top 20% of their public high
schools. Tuition is kept quite low; the state pays approximately 80% of the cost of education while
students pay only 20%. To measure performance, the state monitors the statistics shown in Table 1 of the
case.
While little is known about the other universities in the system, Bay State’s performance lags its sister
institutions, and it appears to have a performance problem. It has lower average GPA and SAT scores, a
lower retention rate (probably resulting from lower GPA and SAT scores), the longest time to graduation,
and the highest average units taken.
Bay State is the second largest university in the system (based on FTEs). We don’t know its rank in terms
of student headcount; it could be that Bay State, located in a major metropolitan area, has a greater mix of
part-time students than its sister institutions and has the highest headcount in the system. That would
certainly be a mitigating factor causing longer time to graduation. It’s unclear from the case that the mix
of part-/full-time students is considered by the state when evaluating performance. This is, of course, very
important when evaluating Bay State’s results. While students shouldn’t be allowed to excuse Bay State’s
results, it’s important for them to notice that some results may be a consequence of the particular mix of
students at Bay State.
Bay State also has the highest percent of class capacity utilized. The state monitors utilization to evaluate
requests for new buildings. The average student at Bay States takes 147 units when 124 are needed for
graduation. That means Bay State students take about 20% more units than necessary, which causes
greater capacity utilization. While Bay State administrators probably think Bay State is at maximum
capacity and should be first on the state’s list for new buildings, more capacity would be available if
students graduated with the correct number of units.
What is the Issue or Problem facing Bay State?
Based on the data presented in Table 1, Brenda Rice, university president, has identified a performance
problem at Bay State. Given that the mission of academic advising is to assist students with degree
requirement so they reach their educational goals in the most efficient and timely manner, it’s clear why
performance improvements.
What analysis do you need to perform?
Rice has requested specific information from the task force:
1. What activities does the advising department undertake?
2. How does COBAA spend its resources on these activities?
Chapter 10 - Strategy and the Master Budget
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3. Why is COBAA’s performance poor relative to benchmarks?
4. How can COBAA improve the college’s performance on units at graduation, first-time freshmen
(FTF) time to graduation, and student satisfaction with advising?
Rice also would like the task force to make a budget recommendation for the 2008 year with specific
suggestions about how to cut recurring operating cost by 15% while achieving the unit’s mission.
Students should identify activity-based costing and management (ABC/M) as an appropriate tool to
address many of these issues. They should recognize the need to use benchmarking data for comparison
once ABC is complete. Strategy mapping and creating benchmarks or a balanced scorecard may be
identified as useful. Finally, students should recognize that they must use their activity analysis plus their
knowledge of the line-item budget to suggest next year’s budget.
What activities does the advising department undertake, and how does COBAA spend its
resources on these activities?
Activity Analysis
To answer the questions regarding the activities performed and how resources are used, students should
transform COBAA’s base budget into an ABC format. Exhibit 1 summarizes the results of our activity
analysis. The details behind this are included in Exhibits 2 and 3. Exhibit 1 was derived by using Table 8
be directly traced to activities.
The second category of costs can’t be traced directly to activities, but they can be traced directly to the
people performing these activities. For example, each staff member working on advising needs a desk,
phone, office supplies, and a computer. To allocate these costs to activities, we developed a fifully-
loaded” salary charge for managers, advisors, and staff because they directly perform the advising
activities. Exhibit 2 shows the development of fully-loaded salaries and also contains the resources that
aren’t loaded into salaries but are traced directly to activities using appropriate resource drivers.
Using Table 8 from the case again, we created Exhibit 3 to show the consumption of resources by
activities.
Benchmarking COBAA’s operations against other advising offices
The activity-based budget gives a starting point for analysis. Exhibit 4 compares operations of COBAA to
the outside benchmark and to two fibest in class” internal operations, AMC and Education.
Students should recognize and discuss the difficulties of using benchmark data.
To discuss benchmarking with students, it’s helpful to discuss different types of benchmarks that might
be used.
Chapter 10 - Strategy and the Master Budget
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◼ Specifically chosen benchmarks that represent known fibest in class,” such as those provided by
the consultant
• Data comparability is always an issue; nothing is perfect, and differences probably do
exist here.
- To use benchmarks, depending on the circumstances, you must consider differences
in the value proposition, size, product mix, production facilities age, and
customer demographics among other things.
• No uniform activity dictionary exists across organizations. Benchmark universities, even
within the same system, may define things differently. Consider for instance, A2,
involving graduation checks. Is this activity the same for AMC and Education as it is for
assumptions. (Students may not create a fully-loaded salary to assign costs to activities.)
• Cost of living adjustments may need to be made for cost factors. (Costs in a major
metropolitan center may differ from those in a rural environment.)
◼ Generic benchmarks for some organization that is considered best in class at an activity or
function. These weren’t used in this case; this would involve analyzing an advising function in an
organization that isn’t part of a typical university. The examples we usually discuss in class are:
• LL Bean for order fulfillment
• VISA for invoice processing and payables
one of the benchmark universities has a much smaller FTE than Bay State. So students have to use this
data cautiously.
Students may spend time discussing whether or not the activity definitions are comparable. For instance,
it’s hard to believe that freshmen aren’t given any orientation to the enrollment process. The external
benchmark universities may include freshmen enrollment as a part of disseminating graduation
requirements or as a part of advising students. More than likely this activity is performed and classified
differently. Likewise the benchmark universities’ activity for monitoring academic progress probably
includes issuing readmission contracts--this procedure is fairly standard at all universities. Other detailed
activities may be merged into the broad activity descriptions in their data.
Regardless of the differences that students discuss, it’s hard to argue against the overwhelming facts. The
external data shows that COBAA performs more activities and at a greater cost per FTE than its
benchmarks. Benchmark universities in the system seem to focus on a few key activities: advising
Chapter 10 - Strategy and the Master Budget
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students, disseminating graduation requirements, maintaining a website, and monitoring progress. Based
on their activities, they deliver advising services not only for less than COBAA does ($88 per FTE vs.
$141), but also with more student satisfaction, fewer units at graduation, and fewer years to graduation for
FTF.
Similarly, both AMC and Education perform fewer activities than COBAA. AMC, which is rated higher
in student satisfaction while its students take a few more units than Education’s students during their
undergraduate work, performs far fewer activities than COBAA. With the exception of fienrolling
freshmen,” their results line up closely with the external benchmark universities. If the external
While no information is provided regarding why Education reviews waivers and substitutions prior to
approval by department chairs, it is known that Education has to check some prerequisites manually
because the computer registration system isn’t programmed to check for more than two prerequisites for
any class. Both reviewing waivers and substitutions and checking prerequisites are activities performed
by COBAA.
An important overall conclusion for students to reach is that regardless of differences in activities,
COBAA is spending a substantial portion of its resources on activities that no other advising operation in
the comparison group performs.
Why is COBAA’s performance poor relative to benchmarks?
We suggest you present a matrix classifying COBAA’s activities into cells based on whether the activity
is strategic for COBAA (i.e., aligns with the mission of COBAA, not the overall mission of the
university) and whether the activity is performed well.
Exhibit 5 contains the matrix (based on the forthcoming Management Accounting: A Strategic Focus, A
Modular Series by Shahid Ansari, Janice Bell, and Thomas Klammer, published by Houghton Mifflin
Company). Evaluating activities according to the matrix requires a great deal of judgment on behalf of
students. Not all students will agree how to classify items as strategic and nonstrategic. Students should
start with the mission of COBAA, which is:
To assist students with their degree requirements so they reach their educational goals in the most
efficient and timely manner possible.
There will probably be less debate about the level of performance of the activities; Table 9 in the case will
help students with this analysis.
Items that fit in Cell 1, performed well and strategic, should be continued without major redesign at this
time. Determining what to do about items in Cell 2, performed well but nonstrategic, requires creativity.
When an item is in Cell 2, students need to determine if the activity should be or is located elsewhere in
the university (it may be redundant of other university activities) or if an advising niche could be created.
Activities classified as Cell 3, strategic but not performed well, need to be observed at the benchmark
colleges so differences can be identified and so the activity can be redesigned to improve performance.
Cell 4 activities, performed poorly and nonstrategic, should be discontinued.
Chapter 10 - Strategy and the Master Budget
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As a part of this analysis, students also may identify activities that are missing. Their study of benchmark
data or their own personal experiences may reveal activities that successful universities perform that
COBAA doesn’t. In that case, students may recommend that a new activity be added (such as providing
instructions on how to use the online enrollment system to all transfers as well as first-time freshmen).
Exhibit 6 provides a suggested analysis of the activities.
How can COBAA improve the college’s performance on units at graduation, FTF time to
graduation, and student satisfaction with advising?
Strategy Mapping
Students familiar with balanced scorecard and strategy maps may create a strategy map for advisement
and create balanced scorecard metrics. One suggested map is presented in Exhibit 7. Circles represent
activities; those marked with yellow (or shaded) belong to advising; others may or may not.
By disseminating detailed information about graduation requirements for each major or option to
students, training students to use the online enrollment process, providing advice as needed, and checking
to determine that proper prerequisites for classes are met, advisors assure that students enroll in classes
status promptly so they can pursue their career or future educational goals. The combination of these
activities should lead to greater student retention because students are succeeding; fewer classes taken that
don’t count toward graduation and, thus, fewer overall units at graduation; and graduations occurring in
fewer semesters.
Note that the strategy map doesn’t include some of COBAA’s activities. It isn’t that activities such as
recruiting or tutoring shouldn’t be performed somewhere in the university, it’s that they aren’t strategies
that cause fewer units at graduation, faster graduation, or increased student satisfaction with their advising
experiences.
Exhibit 8 is an example of what the students might come up with based on their analysis of activities in
Exhibit 6 and their ideas from strategy mapping in Exhibit 7.
Analyzing both benchmarking data and COBAA’s activities for strategic fit, it seems that COBAA should
improving. COBAA needs details of what tasks AMC and Education perform when they prepare
graduation checks. Perhaps COBAA can modify its procedures to improve its performance on graduation
checks. Activities A12 and 13, which COBAA performs well, don’t belong in the advising function and
should be properly located in other university offices. (As an aside, when this activity analysis occurred in
practice, the manager of advising left the advising office and joined another campus department
Chapter 10 - Strategy and the Master Budget
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Should the COBAA’s new initiatives be funded?
Before leaving the topic of analyzing activities, ask students to analyze whether or not the initiatives
proposed by COBAA are strategic and should be considered. They are:
1. The hiring of an ombudsman to take students’ complaints and assist students in resolving their
issues. The primary focus would be on lost paperwork, failure to meet deadlines for adding and
dropping classes, ability to maintain financial aid with unit reductions, help in arranging
for another employee.
2. The development of glossy brochures for each option and major to be distributed to high school
and community college students to assist outreach activities. These brochures should cost
3. Expansion of A1 activities by 25% to include group sessions on the substitution and waiver
process. This should benefit all students who are cross-enrolled in another university, attending
department chairs.
4. Coordinate with the Internship office to have firms offering internships attend the career fair
with information about internship positions. This would create additional event costs of
Item 1, the ombudsman, seems to combine regular advising and quality control with activities expected to
be handled by students directly. We don’t recommend that students add this activity; redesign of work
activities should reduce things like lost paperwork and should free up additional time for advisors to work
with students individually with their problems.
Item 2, development of glossy brochures, is to assist outreach. Outreach isn’t a strategic objective of
advising, so students shouldn’t invest in this activity either.
Item 3, expansion of A1 activities, is strategic. It’s unclear if a 25% increase is necessary, but it is
important to improve group advising sessions. It appears that COBAA is spending a normal amount on
A1 compared to the benchmarks. COBAA should study the details of how AMC performs A1, as AMC
appears to be performing it with better performance metrics.
Item 4, coordinate with internship office, is not strategic for the advising center. Because the career fair
activities are being transferred out of advising to the career center, no plans to expand those items are
relevant.
Chapter 10 - Strategy and the Master Budget
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Budgeting for COBAA
Students can take many different approaches to creating a budget for COBAA. The president has
requested a 15% cost reduction. Many students may take that 15% off the current cost and create a budget
that yields a cost per FTE of about $120 ($141 *.85). Others may shoot for a larger budget cut and
attempt to reduce COBAA’s spending to the amount spent by Education, approximately $89 per FTE.
This should create an interesting opportunity to discuss the political nature of the budget, the role of the
accountant (nested in the college or as a representative of upper administration), and the idea of
developing budgetary slack.
Regardless of which amount students choose to budget for in total, creating the budget should involve
more than just suggesting a cost per FTE. Students also need to realize that they can’t create a final
budget by simply adding together the cost of each activity that COBAA retains. This ignores the cost
factors involved and what action the manager will have to take to manage each.
Since salaries comprise the largest cost that advising incurs ($500,000 of the $874,500), students should
consider the headcount used by COBAA. Table 3 in the case shows that AMC has 850 FTEs per
headcount in advising while Education has 813. COB expects 6,200 FTEs, and using the Education’s
number or 813, COBAA should have a headcount of ~7.63. Using AMC’s FTE per headcount of 850,
COBAA should have ~ 7.3 employees.
Currently COBAA has a headcount of 10 people. This means that the function is overstaffed, which
seems illogical given the complaints and poor satisfaction scores. But existing resources are being
consumed by activities that aren’t relevant to the advising mission. Studying the details of the activities to
be eliminated, it appears that 85% of the manager’s time and 10% of advisors’ time should go away.
Students may suggest immediately laying off one advisor. Instead of laying off one advisor (students may
discuss the nature of these costs, fixed vs. variable), students can achieve the 15% budget reduction
requested by the president without an advisor layoff. Students may suggest that these employees be
redeployed to the activities that need improving. Then, if an advisor quits, the activity would firight size”
at that time if a replacement isn’t hired.
Since tutoring is being eliminated, 30% of staff time should go away. Another 10% goes away if activity
A6 is eliminated. Three equivalent staff positions exist, and some of these positions are from part-time
workers. Students should recognize that the Bay State students working in the office receive hourly wages
and could be given different work schedules without separating a permanent state employee. Further,
COBAA currently spends $33,000 on part-time student assistants, which is equivalent to 4,125 hours of
work. Cutting the part-time hours back by at least one-half cuts the equivalent of one headcount. The
remaining hours should be sufficient to provide office coverage during lunch and break times for the full-
time office staff while allowing for heavier coverage during peak work times. The manager of the
operation will have to schedule more carefully to make sure that bottlenecks don’t occur in the office.
Along with the reduction of one person from advising, all the costs driven by headcount will go down.
Chapter 10 - Strategy and the Master Budget
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The other major cost reductions involve the discretionary spending for travel and hospitality. Since these
activities don’t really belong in advising, these budget items are cut. Exhibit 9 provides a budget that
achieves a 19% budget cut and should achieve better performance.
Students will probably make varying recommendations for the budget. Regardless of the budget they
develop, budget recommendations should be based on the students’ activity analysis and data. Hopefully,
they will support the existing level of effort on A3, A4, and A5, and recommend that additional resources
be deployed on activities that they identify as strategic in their strategy map. Further, students may
suggest other activities or improvements to existing ones. Most will identify improvements to the website
so that students can take care of many of their issues online. This will satisfy more students and reduce
reproduction costs, and it reflects the fact that most students are very active in an online environment.
Exhibit 9 contains an example of a proposed budget for 2008.
Balanced Scorecard
To make sure that all the employees in advising understand the strategy of COBAA, students may
recommend creating a balanced scorecard. Some students may also recommend it for control purposes.
Both are good reasons to create a scorecard. For logical consistency, if students create a scorecard, the
metrics they suggest should tie only to the activities that remain. It’s important that students think through
the strategic link between actions and results and suggest metrics that lead to proper behaviors. This may
be a good setting in which to explain strategy mapping, its link to ABM, and how the balanced scorecard
reveals what managers think must happen for success.
Exhibit 10 provides one suggestion for a scorecard for COBAA.
At the end of this case, when it is taught in the classroom, we encourage the instructor to ask students to
reflect on what is meant by adopting a customer’s perspective when strategically managing operations
and costs. Remind students how they reacted to different suggestions for eliminating activities, how
concerned and dismayed they were with descriptions of lost paperwork, postponed graduation postings,
and their frustration that advisors weren’t meeting with students to provide advising. Drive home that
taking the customer’s perspective in strategic cost management means that the accountant must
understand what customers want and how they interact with or experience organizational processes. Also
reinforce that strategic cost management isn’t about correctly computing the cost of activities performed
and then using that information to project what costs an operation should incur, but instead involves
looking at the situation from several analytical perspectives, considering the environment surrounding the
budgeting process, and then using sound judgment to make recommendations.
Chapter 10 - Strategy and the Master Budget
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Exhibit 1
ABC Base Budget for COBAA(1)
$ per FTE
Activity
Percent
6,200
A1
Disseminate graduation
requirements
$ 135,653
16%
$ 21.88
A2
Correct graduation checks
72,071
8%
11.62
A3
Monitor academic progress
40,936
5%
6.60
A4
Issue readmission contracts
32,748
4%
5.28
A5
Enroll freshmen
64,886
7%
10.47
A6
Review substitution and
waivers
51,603
6%
8.32
A7
Develop advising materials
-
0
-
A8
Update website
21,430
2%
3.46
A9
Advise students
109,760
13%
17.70
A10
Check prerequisites
90,877
10%
14.66
A11
Recruit students
120,858
14%
19.49
A12
Tutor students
95,843
11%
15.46
A13
Arrange career fairs
37,834
4%
6.10
$874,500
100%
$141.05
(1) Details behind this costing are in Exhibits 2 and 3.
10-30
Exhibit 2
Computation of Fully-Loaded Salaries
Costs included in "Fully-Loaded Salaries"
Worker
Headcount
Salaries
Phone
(1)
Office supplies
(2)
Equipment
& Software
(3)
Fully-
Loaded
Salaries
Manager
1
$85,000
600
6,370
4,256
$ 96,226
Advisors
6
342,000
3,600
38,220
25,536
409,356
Office Staff
3
73,000
1,800
19,110
12,768
106,678
Total
10
$500,000
$6,000
$63,700
$42,560
$612,260
Equipment &
Software
15 stations
tutoring
63,840
Reproduction
Usage
135,000
Travel
Direct Cost
A11
40,000
Hospitality
Direct Cost
A13
23,400
$874,500
Support Costs
Resource
Driver
Tutoring
Total
Per
Headcount
Phone (1)
headcount
0
$ 6,000
$600
Office
Supplies (2)
headcount
0
63,700
$6,370
Equipment &
Software (3)
stations
15
stations
106,400
4,256
Support Cost per employee
$11,226
(3) 15 stations go to Tutoring; remainder on Headcount
