Measuring Diploma Production Costs: Does an Undergraduate Business Degree Cost More to Produce than a Non-Business Degree?

Abstract

Many colleges and universities have implemented tuition differentials for certain degree programs including business and engineering. The primary justification for the differential is that the cost of producing these degrees is higher than the cost of other degrees. Most college accounting systems are unsuited for measuring cost differentials by degree program and instead look at the cost of operating the academic unit itself. This research outlines a method that can be used to convert commonly available financial data to a more appropriate form for cost analysis using a value stream accounting approach. We apply Lean management thinking and value stream accounting to compute the per capita salary expense incurred individual students as they progress through their degree program, then aggregate those costs per student to arrive at the average direct teaching cost of earning the degree. Our results show that the average aggregate faculty salary expense differs between degree programs. However, while business salaries tend to be higher than other disciplines, we find that the cost of delivering the classroom instruction portion of a business degree falls within a range. It was higher than the humanities, but significantly lower than the teaching costs for engineering and for the sciences. Cross-subsidies between degree programs can be ameliorated through well-designed tuition differentials, but institutions must understand the underlying cost structure to better manage scarce resources. Although the results we obtained are specific to this institution, the process we used is generalizable to all institutions.