In this unit we learn about the main cost categories and how distance education costs, specifically are categorized. I define the critical terms here, based on Rumble (1997):
Annualization: Depreciation calculation that takes into account the foregone interest, but uses the same interest rate for the life of the capital cost. The most common form used in budgeting.
Average Cost (AC): AC = V + F/N or AC = TC/N where N is the number of students.
Backflush Costing: The total number of products produced by an organization divided by the total cost of running the organization.
Capital: Costs that maintain a value over more than one period of time; for example, building costs. In many cases, these costs will depreciate in value, hence Annualization is used to account for the depreciated value.
Committed: Costs that cannot be eliminated or cut back.
Cost Absorption: Overhead costs that are generic to the business, such as electricity, are assumed by cost center responsible for the development of a particular product. Hence, the cost is assigned to the product.
Cost Apportionment: The division of costs between two or more cost centers. The purchase of equipment, such as computers, that will be used by more than cost center is a common Apportionment.
Depreciation: A simple calculation that determines how the value of capital decreases each year.
Direct: Costs that can be attributed to one product, such as the development of a study guide for a course.
Fixed: Costs that do not change even if the level of activity changes.
Foregone Interest: The interest that would have been accrued if instead of purchasing the capital, the money had remained invested.
Indirect: Costs that cannot be attributed to one product, such as the cost of electricity in a building in which many courses are taught.
Managed: Costs that can be reduced or eliminated fairly easily.
Marginal: Cost of adding just one unit, such as the cost to add one student to a course.
Operating: A revenue expenditure that is required to run the business, such as the cost of postage.
Opportunity Cost: The value of that which you give up to acquire or produce something.
Recurrent: Costs that occur each year, such as the salaries of employees.
Semi-Variable: Costs that with only change when significant changes occur, such as when a milestone is met (ie. number of students reaches 10,000). This milestone is defined by the Relevant Range in which costs are unchanged.
Social Discount: Depreciation calculation that takes into account the foregone interest that will change each year depending on fluctuating interest rates. Typically, quite difficult to estimate so not often used.
Total Cost (TC): TC = F + V*N where N is the number of students.
Variable: Costs that change based on the level of activity, such as when the number of students increase, then the cost of tutoring might also increase.
Written Down Value: The current value of the capital goods.
References
Rumble, G. (1997). The costs and economics of open and distance learning. London: Kogan.
Gail Wingate ePortfolio 