Five Departments of National Training Institute, a Nonprofit Organization, Share

Essay

Five departments of National Training Institute, a nonprofit organization, share a rented building. Four of the departments provide services to educational agencies and have little or no competition for their services. The fifth department, Technical Training, provides educational services to the business community in a competitive market with other nonprofit and private organizations. Each department is a cost center. Revenues received by Technical Training are based on a fee for services, identified as tuition.
All five departments have dedicated space as listed in the accompanying table. Common shared space, including hallways, restrooms, meeting rooms, and dining areas, is not included in these allocations. National Training Institute rents space at $10 per square foot. $\begin{array}{c}\text { Allocation Table }\\\begin{array}{|l|r|r|r|}\hline \text { Department } & \text { Square } & \text { Percentage } & \text { Revenue } \\& \text { Footage } & \text { of Space } \\\hline \text { Administration } & 13.500 & 9.0 \% & \$ 3.600,000 \\\hline \begin{array}{l}\text { Support } \\\text { services }\end{array} & 46,500 & 31.0 & 11,000,000 \\\hline \begin{array}{l}\text { Computer } \\\text { services }\end{array} & 12,000 & 8.0 & 8.800,000 \\\hline\begin{array}{l}\text { Technical } \\\text { training }\end{array} & 6,000 & 4.0 & 1,900,000 \\\hline \text { Transportation } & 72,000 & 48.0 & 4,700,000 \\\hline \begin{array}{l}\text { Total } \\\text { allocated }\end{array} & 150,000 & 100.0 \% & \$ 30,000,000 \\\hline \begin{array}{l}\text { Common } \\\text { space }\end{array} & 50,000 & & \\\hline\end{array}\end{array}$
In addition to its assigned space, the technical training department offers training during off-hours using many of the areas allocated to other departments. Technical Training also uses off-site facilities for the same purpose. About 50 percent of its training activities are in off-site facilities, which have excess capacity, charge no rent, and are available only during off-hours.
John Daniels, the administration department's business manager, proposed a rental allocation plan based on each department's percentage of dedicated square footage plus the same percentage of the common space. The technical training department would be charged an additional amount for the space it uses during off-hours that is dedicated to other departments. This additional amount would be based on planned usage per year.
Jane Richards, director of technical training, claims this allocation method will cause her to increase the price of services. As a result, she will lose business to competition. She would rather see the allocation method use the percentage of department revenue in relation to total revenue.
Required:
Comment on Daniels's and Richards's proposed rent allocation plans. Make appropriate recommendations.