Case Narrative

EAGLEUNIVERSITYLIBRARY

CaseNarrative

         EagleUniversityLibrarymaintainsasmallbookdonationsdepartmentinthebasement section ofthelibrary. The process foraccepting the typical donated book includes searchingthecurrentholdingstodetermineifthebookisalreadyheldbythelibrary, placingasmallinventorytrackingdevice(aradiofrequencyidentification[RFID]tag)in thebook,assigningthebookacardcatalognumber,andfinallyenteringthebookintothe library’sonlinecomputerdatabase/cardcatalogsystem.Theprocessofacceptingacollectionofperiodicalsinvolvesasimilarprocess.Whenthecurrentholdingssearchreveals thatthelibraryalreadyholdsthedonateditem,andwhenthereisnoneedforduplicate copies,theitemsaresetasideinasmallstorageareaandofferedforsaletwiceayear duringend-of-semesterbooksales.Booksthatarenotsoldduringthebooksalearedonatedtocharity.Inthepreviousyear,thelibraryraised$1,000fromthebi-annualbooksales.

Inrecentyears,thelibrary’sdonationsdepartmenthas beenquiteactive.AsenathJames, thelibrarianresponsibleforthedonationsdepartment,has becomeexceedinglyeffectiveat solicitingdonationsfromalumni,retiringacademics,eccentriccollectors,andestatesall overtheworld.Manyoftheitemsarein-printtextsthatthelibrarywouldotherwisehave hadtopurchaseatfullprice.However,someofthedonatedbooksareextremelyrareor outofprintandwouldbequiteexpensiveifpurchasedbythelibrary;someofhermore recentacquisitions includeobscurebooksonnon-Euclidean mathematics, afirstedition copyofRobertA.Heinlein’sStrangerInAStrangeLand,afirsteditioncopyofWilliam Blake’sSongsofInnocenceandExperience,analmostcompletehistoriccollectionofthe

pulpmagazineWeirdTales,severalraremanuscriptsonancientfolklore,anda handwritten manuscriptcontainingwhatexpertshaveauthenticatedtobethewritingsofPercyBysshe Shelley.Herefforthas,tosomeextent,compensatedforthedwindlinglibrarybudgetand allowedthelibraryto createandmaintainan exceptional,albeitunusual,libraryoffering. Moreover,theuniversitylibraryhasacquiredauniqueacademicreputationduetosomeof therareholdingsacquiredthroughthedonationsdepartment’sefforts.Bothacademicsand graduatestudentsfromotheruniversitiesmakeuseof EagleUniversity’speculiarlibrary resources.Perhapsmoreimportantly,thenumberofstudentsseekingspecializedgraduate studiesatEagle(especiallyintheareasofliterature,mathematics,andancientfolklore) hasincreasedsignificantly.Thereissomeevidencetosuggestthatthisisdue,atleastin part,totheincreasedvisibilityoftheuniversity,alongwiththeresearchpotentialafforded bytheuniqueresourcesaccumulatingattheuniversity’slibrary(duealmostentirelytothe successofthedonationsdepartment’sactivities).

TheEagleUniversityLibrarydonationsdepartmentis operatedbytheheadlibrarian, AsenathJames,andagraduateassistant,RandolphCarter,afolklorestudentat EagleUniversity.Theheadlibrarianis a salariedposition($48,000peryear),andsinceAsenath currentlyspendsapproximatelyone-quarterofhertimesolicitingandprocessingbookdo- nations,one-fourthofhercontractedannualbasesalary($12,000)isallocatedtothebook donationsdepartment.TheEagleUniversityLibraryisalsoallotted$5,200peracademic yearinadditionalfundstosupportthelibrarydonationsfunction.Thismeagersumisused toprovidea graduatework-studystudenta stipendtoassistAsenathin thedonations departmentduringthefallandspringsemesters.Work-studystudentstypicallywork20 hoursperweekandarepaidonanhourlybasisatarateof$10perhour.Atypicalsemester is13weekslong.1  Currently,Randolphisworkingallhisallottedhoursinthebookdo- nationsdepartment. Ifhewerenotfullyutilizedbythebookdonationsdepartment, hewouldworkelsewhereintheuniversity,ashisworkhoursandstipendareguaranteedasa partofhisfinancialaidprogram.Inaddition,thelibraryhasallottedasmallspaceinthe basementofitsmainbuildingfordonationsactivities.Thelibraryallocatesaportionof thelibrary’sgeneralfacilitiescosts($1,200peryear).Generalfacilitycosts includedepreciationonthebuilding,propertytaxes,insurance,generalmaintenancecosts,andutilities. Sincethelibrary’scatalogsystemiscomputerized,theonlyotherapplicablecostisfor theRFIDinventorytags,whicharerelativelyminimalandrunabout$0.50per book;these RFIDtagsarepurchasedbythelibraryasneeded.

Typically,Asenathandherassistantsolicitandprocessanaverageof1,000booksper academicyearandcan,withouttoomuchdifficulty,solicitandprocessupto1,200books peracademicyear.However,eachyearforthepastfive years,thenumberofbooksdonated andprocessedforthelibraryhasincreasednoticeably.Unfortunately,Asenath,as head librarian,haslibrarydutiesotherthandonationsandcannotdevoteanyadditionaltimeto thedonationsdepartment.Randolph’scurrentwork-studycontractis restrictedto only20 hoursperweekandonlyappliestothefallandspringsemester.Asenathhasnoadditional helpduringthesummermonths,whichcreatesquitea backlogofunprocessedbooksgoing intothefallsemester.Oflate,AsenathandRandolphhavebegunto experiencedifficulty processingtheincreasingnumberofbookdonations,andsomerecentacquisitionsarestill sittinginboxesonthefloorofthedonationsdepartment’sbasementspace.Consequently, thelibraryhasapproachedtheuniversitybudgetcommitteewitharequesttoincreasethefundsallottedto thebookdonationsdepartmentby$5,000peryear. Theseadditionalfunds wouldbeusedtoemploy part-time studentstoworkanadditional tenhoursperweek duringthefallandspringsemester,andtowork20hoursperweekduringthesummer months2  tocompensatefortheincreasingnumberofdonatedbooks.Thiswouldincrease the department’sannualcapacityto approximately1,900books.Asenathcanhandlethe workloadbetweensemestersandduringtheholidaybreaksherselfwithnoadditionalhelp.

Usingthecostinformationprovidedbythelibrary,thebudgetcommitteecomputeda unitcostperbookof$18.90,calculatedasfollows:

Librariansalaryallocation	$12,000
Graduateassistantstipend	$5,200
Facilitycostallocation	$1,200
Totalcosts	$18,400
Perbook(basedon1,000books)	$18.40
RFIDtagperbook	$.50
Totalunitcost	$18.90

Thecommitteehassincedeniedthe requestforadditionalfundsand expressedthe followingsentiments.‘‘First,theunitcostof$18.90perdonatedbookisalreadytoohigh; anadditional$5,000peryearwouldbringthecostperbookto$23.90perbook,an entirely unacceptablecostfortheprocessingofanoldusedbook.

1   13weeks@20hoursperweekequals260hourspersemesterat$10perhourequatesto$2,600eachsemester foratotalof$5,200peryear.

Librariansalaryallocation	$12,000
Graduateassistantstipend	$5,200
Facilitycostallocation	$1,200
Part-timestudenthelp	$5,000
Totalcosts	$23,400
Perbook(basedon1,000books)	$23.40
RFIDtagperbook	$.50
Totalunitcost	$23.90

‘‘Second,atthealready-highcostof$18.90perbook,thelibrarycanhardlyaffordto acceptmorethan1,000booksperyear;if,forinstance,thelibraryweretoaccept2,000 books,itwouldcosttheuniversity$37,800.Finally,wehaveseriousdoubtsastothevalue ofthedonationsdepartment;ifitwereeliminatedentirely,theuniversitycouldsave,at the veryleast$23,900peryear.Thesesavingscouldbe usedto supportsomeother,more worthwhilefunctionwithinthelibrary.’’

Librariansalaryallocation	$12,000
Graduateassistantstipend	$5,200
Facilitycostallocation	$1,200
Part-timestudenthelp	$5,000
RFIDtags($.50X1,000books)	$500
Totalsavings	$23,900

2   TenhoursperweekX13weeks=130hourspersemesterforthefallandspringsemesters;20hoursperweek for12weeksinthesummer=240hours;totaladditionalhoursare130+130+240=500hourstimes$10 perhourforatotalof$5,000.

The following points are meant to guide your analysis; however, your analysis should conform to the posted case guidelines.  That is, simply responding to the each of the following pointswill not be sufficient. 

1.  Explainwhatismeantbyanactivitymeasure.Identifyanappropriateactivitymeasure foranalyzingthecoststructureofthebookdonationsdepartmentwithinthe university’s library.Justifyyouranswer.Istheactivitymeasureyouidentified atruecostdriver? Explain.

2.  Explainwhatismeantbyrelevantrange.Basedonyourchosenactivitymeasureabove, identifythecurrentrelevantrangeof activityforthebookdonationsdepartment.Justify youranswer.Explainwhytheconsiderationofrelevantrangeis significant totheanalysishere.

3.  CostAnalysis:3

a.  Identifyeachcostassociatedwiththelibrary’sbookdonationsdepartment.

b.  Classifyeachcostassociatedwiththelibrary’sbookdonationsdepartmentasfixed orvariablewithintherelevantrangeofactivityyouidentifiedabove.Justifyyour classifications.Would yourclassificationschange ifthe bookdonationsdepartment’sactivitymovedoutsidetherelevantrangeofactivityyouidentifiedabove? Explain.

c.  Classifyeachcostassociatedwiththelibrary’sbookdonationsdepartmentasdirect orindirect,assumingthatthecostobjectofinterestisthebookdonationsdepartmentasawhole.Justifyyourclassifications.Wouldyourclassificationschangeif youwereto assumethatthecostobjectof interestwerean individualbookprocessed?Explain.

d.  Classifyeachcostassociatedwiththelibrary’sbookdonationsdepartmentascom- mittedorflexible. Justifyyourclassifications.Wouldyourclassificationofthegraduatestudent’sstipendchangeifyouweretoldthatthestipendwasguaranteedonly forthecurrentacademicyear?Explain.WouldyourclassificationoftheRFIDtag costchangeifyouweretoldthatthelibraryis contractedto purchasethe inventory tagsinlotsofahundredtagsatatime?Explain.

e.  Explainhowtheanalysisofcostbehavior,costtraceability,andcostflexibilityis relevanttotheanalysisof thebookdonationsdepartment’srequestforadditional funds.

4.  Explainwhatismeantbyaunitcost.Istheinitialunitcostusedbythebudgetcommitteecomputationallyappropriate?Explain.Doestheinclusionoffixed costsasa componentoftheunitcostsmakeit problematicformanagerialanalysispurposes? Explain.

5.  Examineanddiscusstheuseofcostdataineachofthethreestatementsmadebythe budgetcommitteejustifyingtheirdecisiontodenytherequestforadditionalfunds.In yourdiscussion,addressthefollowingforeachstatement:Aretheircostcomputations correct?Whatassumptionsdidtheymake?Whaterrorsinlogicdidtheymake?Prepare arevisedcostcomputation.

6.  Inaprofessionalmemo(useproperheadingsandformatting)directedtotheChairof theBudgetCommittee:(1)summarize(donotreiterateallofthedetails)yourevaluationof thebudgetcommittee’sanalysis(inPart5), and(2)basedonyouranalysis, presentasuccinct,logicalargumentinsupportofthelibrary’srequestforadditional fundsforthebookdonationsdepartment.Limityourlogicalargumenttothreeorfour keypoints.

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