Incentive Effects of Cost Allocations

question 7

Essay

Incentive Effects of Cost Allocations
Eastern University prides itself on providing faculty and staff a competitive compensation package.One aspect of this package is a faculty and staff child tuition benefit of $4,000 per child per year for up to four years to offset the cost of a college education.The faculty or staff member's child can attend any college or university,including Eastern University,and receive the tuition benefit.If a staff member has three children in college one year,the staff member receives a $12,000 tuition benefit.This money is not taxed to the individual staff or faculty member.
Eastern University pays the benefit directly to the university where the staff/faculty member's child is enrolled or if the student is attending Eastern,it reduces the amount of tuition owed by the faculty/staff member.The university then charges this payment to a benefits account.This benefits account is then allocated back to the various colleges and departments based on total salaries in the college or department.
Evaluate the pros and cons of the present university accounting for tuition benefits.What changes would you recommend making?