Marginal Costing Techniques for Higher Education

Title: Marginal Costing Techniques for Higher Education
Author: Allen, Richard
Brinkman, Paul
Date: 1983
Catalog #: 2BA356
Price: $ 5.00
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Description: The authors begin by noting that the adage “different costs for different purposes” is an appropriate leitmotif for thinking about higher-education funding today. Caught between shrinking resources and already or potentially shrinking enrollments, higher-education officials and their funders are searching for new ways to determine the resource requirements of colleges and universities. In particular, the traditional dependence on calculations of average historical cost is being questioned. This book looks at the prospects of using marginal cost as an alternative means of establishing resource requirements.

Marginal cost is defined as the change in total cost associated with producing an additional unit of output. The cost of providing educational services for an additional student is a critical concern in higher education, because so much of funding and resource allocation is directly or indirectly related to enrollment. Marginal costing provides a sensitivity to enrollment change that is usually missing in calculations of average cost. While marginal costing may be a highly desirable approach, say the authors, the procedure is quite complicated. They describe in some detail how several marginal-costing techniques can be used in higher education. Alternative Approaches: The book provides an overview of three marginal-costing procedures: statistical cost estimation using regression techniques, a fixed- and variable-cost method, and an incremental-cost method. Discussion then turns to the economic theory behind marginal costing, interpreted to apply to the higher-education context. The book concludes with a review of the literature on marginal-cost estimates for business and industry, hospitals, primary and secondary schools, and higher education. Illustrations based on actual data are used to explain how the various marginal-costing techniques work. The illustrations also provide a basis for discussing the difficulties that are likely to be encountered in working with cost data in higher education.