The College of Business Administration needs to distribute $12,000 received from an anonymous donor and earmarked for three business student organizations, Beta Alpha Psi (BAP), Delta Sigma Pi (DSP), and Beta Gamma Sigma (BGS). Relevant information is provided below:Assume that each organization wishes to obtain the highest funding possible.Required:1) Which cost driver will each organization recommend be used to distribute the funds?2) Which cost driver would you recommend and why?

Question

What will be an ideal response?

Answer 1

1) As a reference, consider that if the funds are distributed equally each organization would get 33.3%. Beta Alpha Psi and Delta Sigma Pi would likely want the funds to be distributed on the basis of budgeted expenses because their expenses represent 55% ($5,500 ÷ $10,000) and 40%, respectively of the total expenses. Beta Gamma Sigma would likely prefer that the funds be distributed on the basis of number of students because its membership represents 59% of the total number of student members.
2) Of the three alternative allocation bases provided, budgeted expenses may be the preferred base. Because the organizations had prepared their budgets before the contribution was received, it is not likely that the expense budgets are padded in anticipation of receiving an allocation of funds based on expenses. Distributing the funds equally or based on the number of students fails to recognize, for example, that Beta Gamma Sigma apparently has few scheduled activities. Perhaps the dean should consider asking each organization to devise and submit a fund request outlining their need for the funds. The funds could then be distributed on a competitive basis.