Activity-based costing at colleges and universities: Understanding, communicating and controlling costs associated with educating different student groups

Institutions of higher education are facing cost increases for which they need more useful, accurate, timely, and understandable information. Changes in student demographics and the resulting increases in student services are often cited to explain the correlative increases in costs. Many believe that newer costing systems such as Activity-Based Costing are superior for achieving the goal of understanding, communicating, and controlling the cited increases in costs.; The objectives of this study were to (1) develop a model for the use of Activity-Based Costing to assist colleges and universities to understand the costs associated with educating students in different groups, (2) to implement the use of the model in a private liberal arts university to examine the cost differential in educating its different student groups, and (3) to identify the uses and challenges of implementing the model in public institutions of higher education.; The primary research was undertaken at a private, liberal arts institution widely regarded as accomplished in simultaneously serving different student groups. An Activity-Based Costing (ABC) model was developed and used to examine the cost objects of its different student groups. The study revealed that an ABC system: can aid in determining whether differential pricing for different student groups is supportable; can identify potential areas of process improvement in the manner in which an institution serves different student groups; can provide input to institutional budgeting decisions relevant to different student groups; and can identify whether or not any student services can be outsourced in a cost effective manner in an institution of higher learning. Additionally, the study explored the uses, challenges, limitations and barriers perceived by presidents and chief financial officers at selected public colleges and universities in Texas for implementing an ABC system at their institutions.