ANIRBAN MONDAL (MP14016)

KRISHNENDU MUKHOPADHAY(MP14030)
BHANU PRATAP(MP14023)
GROUP NO 4
ERP PROJECT
COST HEIARCHY FOR XLRI.

The objective of this project is to form a framework for institutions of higher education like XLRI to
fit a cost structure through activity based cost accounting. The general assumptions in this case is that
institution like XLRI have their general ledger , access to non financial databases and use
sophisticated costing software like in SAP to implement such solution.
The hierarchy formation of cost starts with
1) Identify non educational service lines and calculate their fully loaded cost.
2) Create educational direct cost categories by identifying all relevant direct instructional
activities
3) Allocate direct costs to courses/programs through a cost driver based allocation strategy
4) Create educational indirect cost categories by identifying all relevant indirect activities
5) Allocate indirect costs to courses/programs through a cost driver based allocation strategy

Step 1: Separate Non-educational Service Lines

Types of higher education institutions like XLRI can be considered multi-diversified because they
just not impart education. There are many other functions like providing consultancy to corporate,
research based programmes, corporate responsibility etc. Therefore it is very essential to disaggregate
the educational services to study the cost disaggregation.
Step 2: Create Educational Direct Cost Activity Categories
The cost of a course serves as the basic building block for the cost structure planning of XLRI as it
can be rolled up to provide the total cost of running a department or program. It can be used by Deans
or Department heads to analyze their course portfolios and make comparisons across various
portfolios. It also allows the accounts department to understand the total cost of running their
educational enterprise. This methodology breaks up educational activities taking place for each
course, which will assist academics in assessing opportunities for course improvements.

Step 3: Allocate direct costs to courses/programs through a cost driver based allocation strategy
Once the educational activities have been identified, the next step is to allocate the proper cost to each
activity. This requires understanding how much time it takes to accomplish an activity and an estimate
of the personnel cost attached to that time. Time involved in each activity can be difficult to obtain
given the large amount of courses provided by XLRI. For example the one shown below.

Step 4: Create Educational Indirect Cost Buckets by identifying all relevant indirect activities
The direct cost allocation is all that is needed by the institution to complete course redesign and
efficiency work. However, from an institution-wide perspective, all costs should be allocated if the
fully loaded cost of providing students with instruction is to be calculated. Indirect costs should be
with an even spread among all courses. There are many ways to categorize indirect costs.

Step 5: Allocate indirect costs to courses/programs through a cost driver based allocation strategy

Once the types of categories and activities are agreed upon, the next step is to allocate the costs out to
each course in order to calculate the fully loaded cost. it is important that these costs all not be spread
evenly among courses. Rather each category and activity should be analyzed separately and assigned
appropriate cost drivers. Facilities costs could be allocated based on the square footage utilized by
department or school, while many of the student service costs could be allocated based on total
percentage of students served. The advantage to having varying cost drivers for different support costs
is that they enable detailed benchmarking.
The methodology calculates costs at the course level but rolls-up easily to total departmental costs and
total major costs. This data can also be combined with the non-education costs to achieve an
institution wide overview. This methodology places emphasis on cost per course and course level
activities. Thus, it serves as both a tool for planning administrators and for faculty. So by using this
detailed framework concept we can propose a cost structure for the institution like XLRI as follows.

Total Fund
accumulat