Solution 1

a) Productive Hours - 46 * 3 * (45 * 80%) 4968

Total Costs £285500
Rate = 285500/4968 £57 per hour

b) Salaries (30000 * 3)/4968 £18 per hour

Hence combined rate £75 per hour

c) 45 * 85% = 38.25 hours i.e. 2.25 more hours

2.25 * 3 *46 * 57 £17684 over recovery
salary = 18 * 2.25 * 46 £1863 each.

This demonstrates how profits are made and lost by poor forecasting and assumptions
about overheads. If for example the overheads had been under-recovered, then charges
to clients would have been insufficient to cover costs. Likewise if the partners had been
considering whether to branch out into consultancy, a simple charge based on the
existing rate would have been unlikely to yield the expected return, as the cost base
would possibly have changed.

Solution 2

Faculties Teaching Admin Services

Occupancy 7500 20000 7000 3000
Apport'd 37500 ft
Cost £000 1500 300 800 280 120
Admin allocated 1775
2055 (2055)
Services allocated 1000
1120 (1120)
Total 3475 800

Allocated cost 700 5525

Total 10500 4175 6325

Degree costs
Bus Science Art Others
Faculties % 3 2.5 7 87.5
4175 125.25 104.38 292.25 3653.12

Teaching % 2.5 5 4 88.5

6325 158.13 316.25 253 5597.62
10500 283.38 420.63 545.25 9250.74

Student numbers
2500 80 50 120 2250

Cost per student (£000)

3.54 8.41 4.54 4.11