Question

Assume AUAF has decided to replace all professors with teaching robots.

How might this switch impact on the university's choice of cost driver as the basis for overhead application? Explain.

Answer 1

When deciding which driver to use in terms of allocating indirect cost, consider the cause-and-effect relation between the cost and the driver. In addition, consider whether or not the cost driver activity is easily measurable. It is also necessary to consider the cost behavior of the relevant cost.

In a situation where teachers are replaced by teaching robots, there would be a huge difference in the overheads of the university which earlier would have mainly been administrative overheads, utilities, teachers salaries, office supplies, books etc which would now be huge running costs for such robots, their backup and maintenance expenses, related utilities, power, battery or electricity expenses as applicable, training related expenses, etc.

In such cases, the cost driver for the relavant cost pools would too change from teachers teaching hours to total robotic hours.