Cost Allocation Method Essay Sample
Cost Allocation Method Essay Sample

Cost Allocation Method Essay Sample

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  • Pages: 6 (1571 words)
  • Published: August 26, 2018
  • Type: Research Paper
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Cost allocation is the term used to describe the process of determining the expense associated with providing services to individuals who utilize those same services.

The emphasis is on determining the cost of providing the service rather than setting its price. This is essential for establishing a fair fee or tax for the services rendered. The cost allocation encompasses direct, indirect, and incremental costs.

Dissociable costs refer to costs that are specific to a particular service and are associated with a specific end product or user, for example, a hand-off between sectors. Indirect costs, on the other hand, are related to multiple types of services.

The physical en-route installation, such as the installation based on traffic count, incurs incremental costs that vary based on the degree of end product produced. These incremental costs involve changes in staffing le

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vels and staffing costs. Cost allotment is a determining factor in the overall cost of an activity.

Cost drivers are analyzed in activity based costing and can be used in continuous improvement plans. They are typically assessed collectively as multiple drivers rather than individually. There are two main types of cost driver: resource driver, which refers to the proportion of resources used in relation to the cost of an activity; and activity driver, which refers to the costs incurred by activities necessary for completing a specific task or project.

We will address the following questions from three different organizations:
1) U.S. Army Corp of Engineer: Why does the US Army Corp of Engineers concern themselves with cost allocations? Aren't they a branch of the US Federal Government? Why does it matter whether or not costs are allocated?

A) The U.S. Army Corp of Engineers conducts

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Cost Allocation to analyze various potential approaches for distributing costs associated with proposed options.

The main goal of apportioning undertaking costs is to determine who is accountable for repaying cost recovery, cost sharing, or both. The Corps of Engineers has developed a method that takes into account the initial construction costs and the Federal investment that hasn't been recovered in order to establish this allocation. Additionally, it is the responsibility of the U.S. Army Corps of Engineers to allocate funds for future projects that will be financed by the federal government and potentially mitigated or financed by the private sector. In simpler terms, once the federal government finances these projects, it becomes the responsibility of the city and other industries benefiting from them to repay the debt.

The Bonneville Power Administration is the industry responsible for repaying the debt to federal authorities in the case of the U.S. Army Corps of Engineer Walla Walla District. Additionally, the City of Seattle provides a list of costs and their associated drivers for allocating these costs.

Make you agree with the cost drivers (cost allotment factors)?

  • Do you agree with the cost drivers (cost allotment factors)?
  • Does it make sense to consider all of these individual costs and factors identified, or should there be a more consistent method of allocating costs?
  • Why are costs being allocated in a government setting? Aren't cost allocation methods primarily for manufacturing companies?

A) Yes, I agree with the cost drivers (cost allotment factors). It is evident that many departments within a state government have sub-departments.

Therefore, it is important to consider and allocate costs accordingly.

It is necessary to redistribute costs and allocate costs based on historical cost and any other necessary factors for any additional costs projected for the new fiscal year. Do you agree with the cost drivers (cost allocation factors)? Does it make sense to have all of these individual costs and drivers identified, or should there be a more uniform method of allocating costs? In my understanding, the drivers selected came from the subdivisions of every State Department. It is necessary to hold every Department and sub-department accountable for various expenditures and independently auditable in a uniform manner. Why do they allocate costs anyway in a government (City Government) setting — aren't cost allocation methods mostly for manufacturing companies? Cost allocating is used in sectors.

Both private and public entities categorize universities into two different groups: government accounting and manufacturing accounting. In the manufacturing sector, cost allotment accounting is utilized in various ways. Companies distribute costs among departments or sections based on their usage, aiming to delegate responsibility for those costs.

3) The US Department of Human Services has a specific division called the Division of Cost Allocation (DCA) that deals with cost allocation. DCA offers negotiation services for indirect cost rate proposals and cost allocation programs. For over 50 years, DCA has been reviewing the cost allocation methods and practices of entities, such as infirmaries, colleges, and non-profit organizations, that receive Federal funding. This review process helps to ensure that the indirect costs paid by the Federal Government are fair and in accordance with Federal regulations.

The DHHS administers cost allotment in accordance with federal regulations.

One way in which this is done is by allocating costs to projects based on their relative benefit, if the cost benefits multiple activities and can be determined without much effort or expense. This applies to colleges and universities as well.

If a cost benefits multiple undertakings or activities and their proportions cannot be determined due to the interrelatedness of the work involved, then regardless of subdivision b, the costs can be allocated or transferred to benefit a project in any reasonable manner, consistent with subdivisions. Hospitals - Each hospital has its own unique combination of staff.

It is crucial to encourage installations and experience to continue their research in accordance with their own institutional doctrines and goals. Each hospital should employ effective management practices to meet its contractual obligations. The application of the rules stated here must be in line with generally accepted accounting practices. Nonprofit organizations assign a cost to a particular cost objective, such as a grant, contract project, service, or other activity, based on the relative benefits received. A cost is deemed allocatable to a Federal award if it is consistently treated with other costs incurred for the same purpose under similar circumstances and meets the following criteria: (1) It is specifically incurred for the award, (2) It provides benefits both to the award and other work and can be distributed proportionally based on the benefits received, and (3) It is necessary for the overall operation of the organization, even if it cannot be directly linked to a specific cost objective.

The rules prevent the shifting of cost allocation from one Federal award to another in order to address funding shortages or

avoid limitations. Cost allocation is not limited to government agencies; it is also applicable to retail industries. Although there are differences between these sectors, cost allocation applies in many cases but not always.

While some government offices, like the department of motor vehicle, are financially independent, others depend on government funding to function and must prioritize efficiency and customer service to maintain public trust. The Social Security Administration (SSA) is an instance of such an office. Even though it possesses its own trust fund, the SSA's effectiveness is assessed by how well it handles disability claims and the duration required for processing each claim.

The SSA's efficiency is also measured by the waiting period for claimants/clients before a Service Representative contacts them. The government also uses cost allocation to distribute funds for projects and identify non-government investors who owe debts. Cost allocation is a useful tool for accounting for unexplained retail business costs. Unexpected or unexplained expenses can be allocated to specific operations to identify the cost or distribute it fairly or unfairly across the organization. However, managers should be cautious not to assign costs to specific operations and judge their efficiency based on uncontrollable costs imposed by the accounting department.

A great illustration can be a combination of shops in three different locations generating the same revenue and allocating the unaccountable cost to 50% of shop #1, 25% of shop #2, and 25% of shop #3. It is evident that the performance of shop #1 will be lower than the other two shops, but for some reason, such as taxes or other factors, we allocated 50% to store #1. This action cannot be considered to measure the

store's ability to generate revenue or the Management in charge of running the shop.

Those costs should be excluded when conducting a shop performance evaluation.

Mentions

  1. Department of Human Health Service web site. retrieved from: hypertext transfer protocol: //eclkc. Ohio. acf. Department of Health and Human Services.gov/hslc/Program % 20Design % 20and % 20Management/Fiscal/Narrative % 20Discussions/Cost %
  2. Allocation. htm. on November 28, 2009.Department of Human Health Service web site.retrieved from: hypertext transfer protocol: //www. Department of Health and Human Services. gov/opa/espanol/grants/toolsdocs/45cfr74. pdf.

on November 28, 2009.

  • White House web site. retrieved from: hypertext transfer protocol: //www. whitehouse.
  • On November 28, 2009, the hypertext markup language for the gov/omb/rewrite/circulars/a122/a122 was accessed. The information was retrieved from the White House website at hypertext transfer protocol://www.whitehouse.

    The hypertext markup language can be found at gov/omb/rewrite/circulars/a021/a021 and was last accessed on November 28, 2009.

    The US Army Corps of Engineers' Walla Walla Project was retrieved from the URL hypertext transfer protocol: //www. nww.usace.

    Ground forces: mil/lsr/reports/misc_reports/allocate.htm on November 22.

    2009.

  • City of Seattle Budget for 2009 – 2010 retrieved from: hypertext transfer protocol: //www. cityofseattle.net/financedepartment/0910adoptedbudget/Cost_Allocation_2009_Adopted_and_2010_Endorsed_Budget. pdf.on November 22. 2009.
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