RESEARCH OF UNIVERSITIES RESEARCH INDIRECT

COSTS ALLOCATION BASED ON COOPERATIVE GAME

Zhang Zenglian

School of Economics and Management, University of Science and Technology Beijing, Beijing, China

Keywords: Universities, Research, Allocation of indirect costs, Cooperative game.

Abstract: Universities engage in teaching and research activities, universities’ research funds now mainly offset direct

costs of research activities in China, indirect costs of research activities are mainly extracted about 5%

management fee, but this is far from research activities should be assessed to make up for the share. At

present, universities’ research indirect costs mainly measure through the traditional function cost and

advanced activity-based cost, but these methods have some shortcomings. This paper proposes a new

universities research indirect cost allocation method based on the cooperative game theory, and an example

is justified.

1 INTRODUCTION

To ensure teaching and research activities continued,

efficient operation, universities require substantial

funding for construction, acquisition and maintenance

of buildings and equipment, also need to spend large

sums of money for the integrated management of

universities. Since these payments can not be directly

traced to specific teaching and research projects, as

opposed to retrospective obvious direct costs, this

part of cost is known as indirect costs of university.

Although indirect costs can not directly charged from

a specific project, but universities did not invest these

funds will lack of housing facilities and integrated

management services, they will be unable to carry out

any activities. Therefore, indirect costs must be

allocated to all the benefits of university projects, and

direct costs together constitute the full cost of the

project, and obtained from the project completely

compensate the client in order to ensure the normal

development of all the activities of universities.

Indirect costs funded policy of research projects is to

support research projects of university housing

facilities and management costs to compensate for the

science funding policy is directly related to scientific

research necessary for sustainable development and

scientific research infrastructure maintenance and

management system Increased. The teaching,

research and service activities are mutually different

and interrelated, making the indirect cost of

allocation methods of scientific research is full of

complexity and uncertainty, resulting in indirect

costs funding policy research university and

become a hot issue in dispute between principals.

Research of indirect costs and its contributions is

just beginning, and mainly based on traditional cost

methods, some scholars introduced ABC. Based on

the cooperative game theory to study for

universities’ indirect costs compute model, this

provides a theoretical basis for scientific computing

full-cost of research projects, and develop scientific

funding policy for the government.

Shi Jinghuan (2007) believed that the U.S.

federal government payed full cost of research

activities, including indirect costs incurred due to

university bear research projects. Kang Xiaoming

(2007) believed that perfection of government

research indirect cost recovery mechanism should

be increased efforts to support university research

system to ensure stable operation of scientific

system; Based on the quality of scientific research,

establish and improve a stable funding mechanism

for recurrent funding of scientific research; Based

on scientific research cost, establish scientific

proportion of indirect cost recovery of research

projects. Jiao Hanwei (2008) analysis of the current

status and problems of indirect costs of research

university, compared to university research indirect

costs compensation measures of european and

American countries, proposed policy

235

Zenglian Z..

RESEARCH OF UNIVERSITIES RESEARCH INDIRECT COSTS ALLOCATION BASED ON COOPERATIVE GAME.

DOI: 10.5220/0003412902350240

In Proceedings of the 13th International Conference on Enterprise Information Systems (ICEIS-2011), pages 235-240

ISBN: 978-989-8425-54-6

 2011 SCITEPRESS (Science and Technology Publications, Lda.)

recommendations for government to perfect research

indirect cost recovery mechanism. Yuan Liansheng

(2009) believed that the U.S. and British governments

to develop standard methods of scientific research

indirect costs, as government funding indirect

research projects based on cost estimates to ensure

that government indirect costs of university research

and reasonable compensation. But the U.S. scientific

research indirect cost rate established on the basis of

direct costs, indirect cost rates UK universities

established on the basis of the number of researchers.

Li Zhimin (2009) discussed explore the full cost and

ABC to university research projects cost management.

Ouyang Hua (2009) believed that indirect costs of

university research management is not mature, from

the subsidy policy, budget and accounting proposals

three aspects, and describes the operating cost in

university research the use of indirect cost allocation.

Zhan Yiqing (2010) believed that the indirect costs of

U.S. research funding policy based on a scientific

model of indirect cost rate basis. She believes that the

full costs of university research projects, including

research and artificial, including the direct costs and

indirect costs of research assessment form. Review of

scientific research at home and abroad through

indirect cost management literature, I believe that

indirect costs of university research management has

the following problems: on the indirect costs for

university research and the important role of lack of

knowledge; indirect costs of research funding policy

based on the lack of scientific theory; research

indirectly The proportion of the cost of compensation

far below the actual college; university research

indirect cost allocation methods should be improved.

2 THE EXISTING UNIVERSITY

RESEARCH INDIRECT COST

ALLOCATION METHOD AND

ITS SHORTAGE

According to the ownership of cost, the direct cost of

university research that can be clearly directly

attributable to, or higher accuracy directly assigned to

specific research projects and costs; the indirect cost

of university research that can not be clearly

attributed to specific research projects, but it is

essential for the normal cost maintain of university

research activities. "Emplementation of the scheme

on the subject of national research system

regulations" states: direct costs of research projects

typically include personnel costs, equipment

expenses and other research expenses. Indirect costs

typically include the subject of payment service

support unit staff costs and other administrative

expenses, the existing equipment and housing fees,

royalties or depreciation.

Higher education in the production of "products

(students)" is often mass production, each batch of

the product (the same subject in the same year) of

the production process (curriculum, etc.) is

indentical, consumption of resources, training costs

spent almost are indentical, product cost and

therefore can bulk of teaching accounting, and

calculate the unit product cost of each batch, that

the cost of a single object can reach the student

objects. For the purposes of university research

products, due to different nature of different

research projects, scientific research and the

production of different processes and resource

consumption is not the same, so the cost is not the

same in different research projects. Therefore, it is

difficult to share teaching and research indirect cost

allocation to individual research projects, and such

activities can only be allocated to scientific research,

scientific research and the cost of indirect cost

allocation can only be the object of scientific

research activities. Indirect costs of university

research purpose is to share teaching and research

activities in that part of the shared costs are divided

according to the principle of benefit, be allocated to

teaching, research and other activities.

Apportionment of indirect costs, the function cost

(FBC) and activity-based costing (ABC) represent

two different costing methodologies.

Cost function is a traditional way, only with the

unit level as the cost drivers, and as the common

costs allocated to each of the product. As early

production is not high degree of automation,

management is simple, the market less competitive,

companies mainly in large quantities, less variety of

modes of production, mainly in the indirect cost of

production labor hours or machine hours as a

benchmark to the average linear distribution The

cost of the product. The traditional method of

product cost in addition to the direct cost of the

product materials, direct labor, the rest are

classified as manufacturing costs, and operating

unit level cost drivers to allocate the common costs

of imputation. The units of activity driver is the

level of production changes, cost changes result in a

number of factors. Unit level activity drivers used

to allocate the costs of manufacturing products

ICEIS 2011 - 13th International Conference on Enterprise Information Systems

236

imputation, assuming the product is actually

consumed in these common products, the production

cost and highly relevant. Traditional cost allocation

methods are often used to allocate fixed

manufacturing costs due to the standard unit of

product output, direct labor hours, direct labor rates,

machine hours, direct materials. As the basis of such

allocation is closely related with the production, the

traditional method known as the "number-based " cost

allocation method. In previous single product

structure, production equipment simple production

environment, such as the cost driver unit level only,

and accordingly the cost allocated to the linear

products to cost-sharing method, did not show

anything wrong place . But the knowledge economy,

the cost and management theory and practice has

been a huge challenge:

(1) high-tech development, especially in modern

manufacturing technology, increasing the

value of machinery and equipment, machinery

and equipment maintenance costs,

depreciation expenses increased significantly,

resulting in significant changes in the structure

of product cost, reduced direct costs, indirect

costs significantly Improve and continue to

use traditional assessment methods, likely to

cause distortion of product costs;

(2) use of non-causal factors of the single standard

indirect cost-sharing and prone to over-or

underestimate the cost, resulting in a

difference between products "cost shift "

problem.

The basic principle of ABC is set according to

different cost drivers, cost pools, respectively, and

were consumed by a variety of products, amount of

work in the corresponding cost-sharing the cost of the

library, and then were aggregated total cost of

operating a variety of products, calculated products of

the total cost and unit cost. The calculation of the

operation as the core, according to operations on the

resources consumed by the consumption of resources

will be allocated to the cost of operations, then the

operating cost of the product based on cost drivers to

trace the formation and accumulation, thus get the

final product cost. ABC is a more accurate cost

allocation method that can be reasonably stable

allocation of indirect costs to products, it is applied to

the calculation of indirect costs of university research

is feasible, not only for the government to the

university's research and provide the basis for indirect

cost allocation, Universities can also provide cost

control and financial decision-making to help

strengthen the effective use of university resources.

But operating costs of Applied Research indirect

cost method may encounter the following problems:

(1) On inadequate understanding of scientific

research indirect cost accounting.

(2) University College is not conducive to the

current accounting system, the implementation

of activity-based costing. The implementation of

ABC requires additional data, such as teachers

in various activities and time spent, the current

university accounting into the accounting

system is not in its.

(3) Activity-Based Costing there own limitations.

First, the implementation of activity-based

costing is a systematic project, the division of

work is a bottom-up or top-down process, its

implementation requires in addition the financial

sector with many sectors outside, especially the

support of school leaders need to Coordination

of various departments. Second, the job has a

different level, and the university is a function

of the operating process of the parallel-type

structure, operations center to determine the

division with the job inevitably have a certain

subjectivity. Select the appropriate cost drivers

in a distribution, and sometimes because of lack

of appropriate data and judgments based on the

subjective experiences and feelings. Again, the

accurate calculation of costs, the need for each

job to determine a cost driver, which requires

the implementation of the higher costs, not

cost-effective. Sometimes a job has multiple

cost drivers, how to determine the cost drivers

involved in one or more of product costing is

also a problem.

(4) high cost of implementation. First, the

implementation of activity-based costing

systems need to develop operating costs, the

development and operation and maintenance

more expensive. Secondly, the successful

implementation of ABC requires staff with

appropriate quality and ability, and the current

university accounting staff understanding of

costing not much. Again, the implementation of

activity-based costing in the first several years

after, need to be tracking the implementation

and evaluation, and implementation process,

some of the problems corrected. Therefore, the

successful implementation of activity-based

costing requires a longer time.

RESEARCH OF UNIVERSITIES RESEARCH INDIRECT COSTS ALLOCATION BASED ON COOPERATIVE

GAME

237

3 COOPERATIVE GAME

THEORY APPLY TO INDIRECT

COST ALLOCATION OF

SCIENTIFIC RESEARCH

Game theory studies the behavior of making a direct

interaction between the main decision-making and

that decision when the balance. It has two branches:

cooperative game and non-cooperative game.

Non-cooperative game emphasizes individual rational,

individual optimal decision. Cooperative game

emphasizes group rationality, emphasis on efficiency,

impartiality and fairness. Allocation method from the

scientific perspective, cooperative game theory

omitted the co-operation in the formation of a rational

process, but the distribution of benefits of alliance or

cost sharing. In fact, so that all parties is the nature of

alliance cost sharing, but also the core of cooperative

games, applications cooperative game can be a

reasonable allocation of indirect costs to provide a

feasible and fair way. Cooperative game is given a

limited set of participants N, the characteristics of

cooperative game type is an ordered number on the

(N, C), where V is characteristic function

{}

NSS

⊆=2

to the set R

of real numbers from the

mapping, and



0)( =

. Cooperative game has an

implicit assumption that all people are able to

participate in forming an alliance, but when a

coalition of participants may act in the interests of

other production externality, the alliance is not

necessarily formation, that cooperation does not

necessarily is stable. Cooperative game theory

allocation sets and defines the core set, the two sets of

cost-sharing technology to provide a theoretical basis.

(1) Distribution set. If for

i∈N

, has x

≤C(I)

cooperative game solution satisfies individual

rationality, which x

expressed the cooperative game

solution; if

∑

=C(N) , the cooperative game

solution to meet the collective rationality. Distribution

of the game is also set to meet the individual

rationality and collective rationality of the solution set.

Participants in the evaluation of a rational distribution

of the program, will participate in co-operation will

be co-benefits in and out of the interests of individual

actions can be compared, if the former is large, the

participants will stay to continue cooperation; if the

latter is large, Participants will exit to go it alone. In

the co-benefits (cost) distribution, if the participants

continue to work to stay, then the allocation method

consistent with individual rationality. If the

cooperation of all participants assigned to return

(cost) is just equal to the sum of the income of all

participants (cost), after the formation of the

alliance will work from all participants (cost) is just

assigned to each participant and distribution

completed , The allocation method consistent with

collective rationality.

(2) Core set. Independence of the inspection

requirements in terms of every little alliance,

assigned to the minor leagues, the cost of all the

participants and may not be available to more than

the cost of a separate alliance. In the cost-sharing is

NS ⊂

∀

for the game,

∑

=C(S), which S is the

minor leagues. Distribution through independent

test set is the core set. Distribution set from the

perspective of individual participants, but the

alliance, the number of participants leaving the

original form of mutual cooperation League minor

league, the benefits may be greater, which means

that the Alliance does not leave more than a few

participants Alliance to form a minor league better.

In the cooperative game, the rational allocation

is Assignment Set and the Core is stable at a

reasonable cost allocation method. For accuracy,

the distribution of cost allocation system provides

the results of cooperative game theory is defined by

a reasonably stable set, that have the same

characteristics as the real product cost, distribution

of results than those who do not belong to the cost

of reasonable and stable set of system accuracy.

One of the basic elements of cooperative game is

the game the main basis of party to join the alliance,

is to find a way to fair and reasonable and accurate

distribution of alliance costs (or gains), so that all

parties to cooperate to join the alliance. This

approach can be successful, must be made in each

of the players joined the league after the distribution

of costs (or gains) than his acting alone low cost

(high), or alliance will not set up. Many types of

cooperative game solution, almost all the specific

issues for each class of solutions specifically

defined. Satisfy the individual rationality and

collective rationality conditions, and through

cost-sharing programs test for independence and

stable cooperation for the rational allocation. Cost

allocation in cooperative game theory, assuming the

first i, X

alliance cost of personal gain, C(N) the

total cost incurred for the cooperation, C

participants alone for the costs incurred, the cost of

internal stability can be assessed more than

cooperation Game:

ICEIS 2011 - 13th International Conference on Enterprise Information Systems

238



⎪

⎩

⎪

⎨

⎧

⊆∀≤

∈∀≤

∑

∈

NSSCx

NiCx

NCx

)(

The first two conditions for the weak condition,

the definition of the distribution set, which is the core

set of necessary conditions to meet the first two

conditions at the same time meet the third condition

of the allocation method is the core allocation.

Cooperative game there is no single solution, it is

difficult to have a solution can meet all of the "fair"

understanding of the most challenging game so the

cooperation is to create a unified "solution ", that is,

from a variety of different Well-selected nature of the

solution in the only configuration or cost allocation

plan. Applications in economics, more than the

current Cost Allocation method for solving the

cooperative game model including Shapley value

method, the core method, quadratic programming and

cost-sharing gap method. Shapley LS Shapley value

is given an n person cooperative game solution, it can

not only solve the effective distribution of economic

activities issues, and social activities can be estimated

in the rights of groups or factions. Suppose (N, C) as

a cooperative game, for a given characteristic

function can be assessed to determine the specific

vector x={x

,...,x

}∈R

to satisfy anonymity,

availability, and virtual sex plus the unique solution

of the four properties:



[]

)!1()!(

|)(|,

,,...2,1)\()()(

}{

SSn

niiSCSCSWx

SiS

−∗−

=−∗=

∑

∈

其中

Among them, x={x

,...,x

}∈R

known as the

Union's Shapley value;

∣S∣

that contained

members of the League of the number of S, C is

defined on all subsets of N, a cost function that

represents all the possible formation of N in the

replacement cost of the best groups, n Is the number

of the players, N is the set of all the players. Shapley

value that the member i of the coalition S i increase

the cost C(S)-C(S\i) of the weighted average of the

weights W(

∣S∣

) that the players in any

n-permutation, i is the probability of only part of the

Union S.

4 NUMERICAL EXAMPLE

Suppose a university engaged in teaching, research

and the other three types of activities, operating in

accordance with the college faculty approach to

management, that is, all income and expenses

according to the three types of activities a separate

accounting for all costs occur within the university

are to be assessed Commitment to these three types

of activities. The university is divided into eight

large departments, where the costs incurred by

hospital administered an example in this research

and indirect costs are allocated between the

activities of three classes of problems.

Court administered the indirect costs incurred,

including labor costs, materials costs, depreciation

of fixed assets and office costs and other expenses.

The past, these costs mainly by teaching and other

activities to share, bear the indirect costs of research

activities are mainly extracted a small percentage of

faculty of management fees. But the House

leadership recognized that due to research activities

in the faculties of the spending account for a large

proportion of the cost of the current distribution of

this simple way does not really reflect the real

burden of each type of activity the cost of education

may lead to crowding out expenditure on research

spending. Thus, according to university in the past

financial data, and use cooperative game mode on

the possible costs of hospital administered by the

situation as described below.

Administered by the School teaching, research

and other activities of 1,2,3 collection for the three

types of N = [1,2,3], then S = ({1}, {2}, {3}, {1,2},

{1,3}, {2,3}, {1,2,3}) 3 types of activities on behalf

of all the alliances possible. When the three types of

activities independently, they should bear the

indirect costs, that their characteristic function is: v

({1}) = 8, v ({2}) = 6, v ({3}) = 4. When the two

two leagues, due to the presence of fixed costs,

making the alliance more expensive than the cost of

both separately and low, Union Square

characteristic function is: v ({1,2}) = 12, v ({1,3 })

= 10, v ({2,3}) = 8. When the three formed the

Alliance, the total value of the characteristic

function: v ({1,2,3}) = 15. According to Shapley

value formula, the three alliances, their respective

costs should be allocated x1, x2, x3 can be

calculated as: x1 = 7; x2 = 5; x3 = 3. The following

results on the Shapley value for authentication.

(1) Super additive. v ({1,2,3}) = 15 ≤ v ({1}) + v

({2}) + v ({3}) = 18.

(2) Groups is reasonable. x ({1}) + x ({2}) + x

({3}) = x ({1,2,3}) = 15.

RESEARCH OF UNIVERSITIES RESEARCH INDIRECT COSTS ALLOCATION BASED ON COOPERATIVE

GAME

239

(3) Individual rationality. v ({1}) = 8 ≥ x1 = 7; v

({2}) = 6 ≥ x2 = 5; v ({3}) = 4 ≥ x3 = 3.

Proven, Shapley value solution to meet the

characteristics of cooperative games to three types of

activities on the allocation of indirect costs result

should be acceptable.

5 CONCLUSIONS

With the continuous development of universities,

research activities, more and more important for

universities, research university indirect costs

accounted for the proportion of the total indirect costs

are also increasing, the simple, low percentage of

management fees have not effectively compensate for

the consumption of common resources research

activities . In the traditional system can not be

reasonably cost-effective distribution of indirect costs

will be allocated to the related activities, the operating

cost method is the first choice of indirect cost

allocation, allocation results when the operating cost

method are not satisfied, based on cooperative game

theory of indirect cost allocation method has been

widely Application. Despite the advanced nature of

ABC caused by early theorists and practitioners of the

attention, but has certain practical difficulties and

shortcomings, can not find the cost drivers or cost

driver is difficult to find, contrary to the principle of

cost-effectiveness. Cost allocation based on

cooperative game cost driver technology eliminates

the need to find the difficulties caused by direct of

indirect costs, and assigned to stakeholders. But these

three can not replace each other sharing technologies,

but the coexistence of the three technologies together

under the premise of the development of the practical

application of university and will not be limited in

some way, should be based on the actual situation and

determine which method to choose.

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Dong Baomin. Cooperative game theory: solutions and

cost-sharing [M]. Beijing: China Press, 2008.

Shi Jinghuan. American University research funds from the

indirect cost of management between the government

and the University [J]. Journal of Education, 2007 (6).

Ouyang Hua. Costing in indirect costs of university

research in the application sharing [D]. Master thesis,

Central South University, Accounting, 2009.

Bao Xinzhong. Cooperative game theory allocation of the

cost of improvements in technology [J]. Industrial

Engineering, 2009 (12).

Jiao Hanwei. On the Research University Indirect Cost of

scientific research [J]. Research Management, 2008

(10).

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measured the overhead cost of research projects [J].

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Li Zhimin. Higher research projects all cost management

[J]. Education Accounting Research, 2009 (4).

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