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CONCEPTO CANTIDAD VALOR
UNIT 2 EDUCATIONAL COST AND FINANCIAL
classification of educational costs raises a lot of economic, financial,
institutional and technical questions; such as what has to be sacrificed?
When does money have to be paid? Who has to pay? And what is the
function of the inputs? (Psacharopoulous and Woodhall, 1985). Theanswers to these complex issues and problems vary with regards to the
various bodies or groups of individuals who take decisions regarding the various aspects of costs and revenue within the educational system.There is, therefore, the need to map out the structural analysis of the various cost and revenue concepts using generally agreed descriptions
as yardstick.
3.2 Concept of Educational Costs
Cost and expenditures cost, to a non professional, is narrowly defined as the money value incurred in the process of production. However, to the
economist, cost involves not only money spent but also the alternative
forgone in order to produce a given item or service. The Dictionary of
Modern Economics (1985) defined cost as a measure of what must be
surrendered or given up in order to acquire, obtain or produce an item.
On the other hand, expenditure is viewed as the amount of resources that are directly spent or expended on the procurement of goods and
services.
Expenditure on education from the budgetary sense, therefore, is the
monetary value of resources assigned to educational institutions during a given year. Nevertheless, this does not reflect the ‘true cost' or “real
cost'' of education. The 'true cost' or 'real cost'' of education is the alternative opportunities that have to be sacrificed or forgone in theprocess of providing education services. For example, the opportunity cost or real cost of building a new university is the alternative projects
that are forgone such as health, road, telecommunication, building technical schools, primary schools, etc. Thus, “cost in education
represents the value of all resources, in terms of money and sacrifice, interms of money and sacrifice, used to accomplish an educational
project” (page? 1988). Indeed, the inputs of education can be measuredin terms of money of real resources that are used up in the educational
process, such as time of students and teachers, and other staff andbooks, materials, equipment, and buildings, all of which have alternative uses.
3.3 Types of Educational Cost Analysis
Three groups of decision makers are involved in the production,
consumption, or funding of educational services. These are as follows.i. The institutions; as represented by schools at all levels.
ii.
The households; as represented by private individuals and theirparents.
iii. The society; as represented by the government at all levels.
It is on the basis of the above that cost in education falls into three broad categories: institutional costs, private cost and social costs.
1. Institutional Costs
These are costs incurred by the institutions (educational) in the process of carrying out their activities. These consist of capital costs (expenses on durable items: building, furniture, electricity and water installation, land, equipment etc) and current or recurrent costs (expenses on consumable items: teacher and non-teacher salaries and allowances, maintenance, books and stationery, transport, scholarships, etc).
2. Private Costs
These refer to the expenses by the individual students, their parents’
guardians or their sponsors in the process of undergoing formal education. These consist of expenditures on tuition fees, books, accommodation, transport, uniform, etc. This is in addition to the opportunity costs of schooling in the forms of forgone productive
contributions to family income and/or income earnings.
3. Social Costs
These refer to the costs borne by the society, represented by the cost incurred by the Federal, State and Local governments in the process of providing education for citizens. Technically, it is private cost plus
institutional cost less the value of scholarship and tuition cost.
Longe (1982) provides a set of equations based on the above classification of cost of education thus:
Total cost (T) = Where:
P + S + U
Private cost (P) = (X1 + X2 + X3) Social cost (S) = (P + U – X9 – X10) Institutional cost (U) = (Q+R)
And where:
Current cost (F) =
Capital cost (Q) =(X4+X5+X6) (X7 + X8)
And where X1, X2..., X10 are variables:
X1 =
X2 = X3 =School fees
Uniform expense
Transportation expense
X4 =
X5 = X6 = X7 = X8 = X9 = X10 =Salaries Supplies Maintenance Buildings Equipment
ScholarshipsTuition fees
4. Direct and Indirect CostsThe direct cost of education is the amount of money expended in the production and purchase of educational services. It refers to the direct
money expenditure on education by the private individuals (direct private cost), institutions (direct institutional cost) and the government (direct social cost). These costs include expenditure on books, transport, uniform, tuition, salaries and allowances of staff, equipment
and building.
On the other hand, indirect costs of education are real costs or opportunity costs of education. They may be incurred by the private individual (student) who determines to undertake an educational programme, or by the government that decides to provide educational training programme for its citizens. Indirect private cost is the value of the income or earnings forgone by the student while in school, less the
tax he would have paid if he had earned the income. Indirect social cost, on the other hand, is the value of the contribution of the students to
the economy if he was working and this is measured by the gross
income or earnings forgone by the student because he is in school.
Thus indirect private cost is income forgone after tax, while indirect social cost is income forgone before tax.
5. Capital Costs and Recurrent Costs
Recurrent costs represent all expenditures on 'consumable' items, which bring immediate or short-term benefits and have to be regularly
renewed, hence the term “Current Costs” or “Operating Costs”.Expenditures on personnel services and summable supplies that are rendered or used up within one fiscal year (book, stationery, fuel, etc)
are current in nature.
On the other hand, capital costs involve expenditure on the procurement
of durable assets such as buildings, equipment or land, which are
expected to yield benefits over a long period. They relate to moredurable items that render useful services over a long period of years if
properly maintained (hence major repairs and maintenance are, strictly
speaking, items of capital costs since they prolong the useful life ofcapital items).
The measurement of both capital and recurrent costs may be in term of
actual or current prices, or in terms of constant price level. An analysis of educational expenditure trends, for example, may be concerned eitherwith trends in actual expenditure or expenditure expressed in terms of constant purchasing power. This is necessary in order to give
allowance for inflation/deflation.
3.4 Educational Cost Production Function
Cost function is a mathematical and/or graphical representation/description of the relationship between cost and the level of activity (output). In education, cost function shows the relationship between costs of education and the number of students enrolled or number of graduates. The analytical device of the cost function is used as a convenient way to represent the dependence of costs on output or scale and to illustrate the relationship among total costs, Average costs
and Marginal costs.
Total Cost (TC)
These consist of the costs of all resources used at any particular scale of
operation. In actual empirical studies, TC may refer to total recurrent expenditure, while in other studies; capital costs may be included in
measuring. I
TC. In the same vein, total cost consists of the summation of fixed costs (FC) and Variable costs (VC); that is, TC = FC + VC.
Indeed, TC is a function of the level of output or scale of activity i.e.
(TC = f (X). For example, it is obvious that a school with 500 pupils will incur greater costs than one with only 100 pupils. Likewise, a university department with 50 students will incur lower costs than one
teaching 120 students in the same subject, ceteris paribus.
Fixed Costs (FC)
These are expenditures on items, which do not vary as output varies.
These consist of expenditure on classroom, chalkboard, tables and desks. They include expenditure that must be incurred irrespective of
pupil of student numbers, hence the term “set-up costs”. For instance,
at the construction stage of a school, the level of activity or output is zero but expenses have to be incurred on buildings and fittings which represent the FC, or “set-up costs”. More so, a particular building in a
school may accommodate varying number of students until the
maximum capacity is reached. Whatever the number of students (who will eventually become the output) housed in such building, the costwill not change. However, the cost of maintenance is not included here
since this could be done to the maintenance cost. Fixed cost is incurred
every year whether students are admitted or not. That is why it is also referred to as unavoidable cost.
Variable Costs (VC)
These are expenditure on items, which vary with output on the short run. Such items include chalk and stationery. The magnitude of VC obviously depends on the scale of activity. It should be noted that TC is
to a larger extent included by VC than FC since the former changes as output changes. This also applies to the short run situation, where some factors are variable. Where the students’ population rises, with no change in educational technology, more teachers will be needed for the additional classrooms to be created. The cost of employing more teaching personnel can be viewed as variable cost since it changes with
enrolment.
Average Cost (AC) or Unit cost per Student
Average cost or Unit cost is the total cost of producing a given level (or annual rate) of output divided by the number of units of output produced. The unit cost per student is the total cost in a given period either for the whole system, or more likely, for some particular part of
it, divided by the number of students in the same education category. In other words, it measures the cost of educating one pupil or student.
Stated mathematically: AC = TC X Where:
Marginal Cost (MC)
AC = Average or unit cost
TC = Total CostX = number of students.
This is the change (either increase or decrease) in total cost resulting from changes in output by one unit. Marginal cost is the additional cost
incurred when one additional student is enrolled, hence the term 'incremental cost'. Indeed, the MC of one unit of output is the extra expenditure incurred when one additional unit is produced and the result is a marginal increase in total output. The marginal cost of education is measured by the increase in TC which occurs as a result of