Backflush Costing/Average Cost per Unit

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In Unit 2, a means of calculating average costs was introduced in the context of discussing the cost structure of ODL when compared to conventional education. The Average Cost Equation is:

       AC = TC/N


AC = average cost per student TC = total cost N = number of students

The Average Cost Equation provides only a very rough measure of the cost per student, which can be misleading, as outlined above. However, where an ODL institution offers only a few programmes with nearly uniform inputs (costs) and outputs (graduates), then this approach can be used. For example, the Universidad Nacional Pedagógica in Mexico offers only a single course, a Bachelor of Education degree (Rumble 1997: 59). Determining the unit cost per graduate can thus be calculated with some accuracy by dividing the total costs of the institution each year by the number of students who complete the course. This approach is referred to as backflush costing, which is summarised in the following equation:

Backflush Costing Equation:

Cu = TC/Nu

Where: Cu = cost per unit (FTE student, graduate, course or other unit) TC = total cost for institution Nu = number of units delivered or used