Paragon University Operates an Extensive and an Expensive Registration, Testing

question 159

Essay

Paragon University operates an extensive and an expensive registration, testing, and counselling centre, 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 centre 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 centre.Required:
Recommend to Paragon University a method (or methods)of allocating the costs of registration to
the three departments.

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Definitions:

Markup

The extra charge applied to the acquisition cost of items intended to offset operating costs and secure a profit, which defines their market price.

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the net profit from the investment by its cost.

Traceable Fixed Expense

Costs that can be directly linked to a specific department, product, or segment of a business and do not change with the level of output or sales.

Net Operating Income

A company's revenue minus its operating expenses, not including taxes and interest charges, representing the profit from core business operations.