Cost allocation is the process of identifying, aggregating, and assigning of cost to various separate activities. There is no overly precise method of charging cost to objects, hence resulting to approximate methods being used to do so. Amongst the approximation basis used includes square footage, headcount, cost of assets employed, and electricity usage amongst others. The main aim of cost allocation is to spread cost in the fairest possible method and also to impact the behavior pattern of the cost.
The government always has various projects to be undertaken for the benefit of the nation, and the projects require proper cost allocation of the available resources. This is done to identify repayment responsibility with the respect to recovery, cost sharing or both. The federal government makes cost allocation with an aim of deriving an equitable distribution of project costs among authorized project purposes, or the proposed for authorization. The laws and requirements that requires cost sharing or reimbursement specifies recovery of cost incurred for the service. This makes cost allocation necessary for most federal multipurpose projects having reimbursable purposes (U, S Army Corps of Engineers, 1998).
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent c...
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...nt costs are allocated using different factors. This is because to determine the magnitude and the scope of a certain cost, there must be some factors to be considered. Hence different categories of costs are treated differently and are allocated cost differently. Hence it is clear that cost allocation is a noble requirement for every project.
Works Cited
City of Seattle Budget 2009-2010, (2011). Cost Allocation. Retrieved from:
http://www.cityofseattle.net/financedepartment/0910adoptedbudget/Cost_Allocation_2009_Adopted_and_2010_Endorsed_Budget.pdf
Kulick Donald J, (1993). Allocation of Cost and Administration of Taxes. Retrieved from:
http://www.workforcesecurity.doleta.gov/dmstree/gal/gal_pre_93/gal_04-91.htm
U, S Army Corps of Engineers, (1998). Cost Allocation. Retrieved from:
http://www.nww.usace.army.mil/lsr/reports/misc_reports/allocate.htm
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
Roybal, H., Baxendale, S.J., and Gupta, M., (1999), “Using Activity-Based Costing and Theory of Constraints to Guide
An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx, 2009). The key to cost allocation under ABC is to identify the activities that are performed to provide a particular service and then aggregate the costs of the activities (Gapenski, 2012). This is a marked departure from the practice of sharing overheads costs equally or overheads becoming part of the overall profit-loss estimate instead of component product pricing (Nayab, 2011).
This project belongs in the engineering-efficiency category; therefore, it has to fit at least 3 of 4 performance hurdles, which are 1. Impact on EPS; 2.Payback; 3.Discounted cash flow and 4. Internal rate of return.
59a. Detailed Budget: Please attach a detailed budget outlining all costs you will incur in the implementation of the proposed project, by year. Only include costs incurred after the Proposed Project Funding Start Date. Be sure to list costs and not activities. Please ensure that the total project costs in your detailed budget match Question 57 Total Project Funding Required, and Question 59b Total Project Costs. (Maximum 1 attachment)
Kim, B. &. (2011). Combination of project cost forecasts in earned value management. Journal Of Construction Engineering & Management, 958-966.
Suggested cost management, planning and scheduling techniques would help in controlling costs and schedule problems.
[4] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 3, Cost Assignment, p. 54-59
According to the Delivering Health Care in America, cost shifting is a method used by insurance companies to balance inadequate payments, mostly to bridge the gap from low government reimbursement (Shi & Singh, 2015). Cost shifting is when private insurance companies charge people more to make up for the money they lose. Hospitals and other health care providers are able to compensated for the services they provide for uninsured patients by increasing payments to private insurance (Coughlin, Holahal, caswell& McGrath, 2014). Government programs such as, Medicare and Medicaid reimburse hospitals at a very low rate, according to Potter (2015) the only way hospitals can be able to keep providing care and make up for their looses
The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
For example: with the increase of the number of products produced, the cost of operating a machine also increase. Second we have batch level costs which is associated with batches; producing a multiple units of the same product that are processed together is called a batch. The third type is product level costs which arise from any activity in order to support the production of products. The fourth and the last type is facility level costs, this costs cannot be determined with a particular unit, product or batch; this costs are fixed with respect to batches, products and number of units produced. A single measure of volume is used for allocating costs to each service or product in traditional method for example: direct material cost, machine hours, direct labor cost and direct labor hours. A cost driver is an activity that generate costs, it can be generated by two types of costs the first is a particular machine 's running costs where the costs is driven by production volume as machine hours; the second is quality inspection costs where the cost is driven by the number of times the relevant activity occurs as the number of
In its current practice, the roles and functions of cost accounting includes additional functions. More specifically, it can be described as more than an inventory tracking system. This is because cost accounting entails defining the charges of activities and goods (Horngren & Srikant, 2000). Because of its many roles and functions, this accounting method has been of great help to growth and expansion of business planning and management. Again, the reports offer assistance in the planning and growth projections for different business functions and units within the organization. The information cost accountants offer different uses, some of which aid in the controllership function, as well as the industrial
Project managers must take cost estimates seriously if they want to complete software projects within budget constraints. After developing a good resource requirements list, project managers and their software development teams must develop several estimates of the costs for these resources. There are several different tools and techniques available for accomplishing good cost estimation.
1) the expected cost of the initial base costs for the acquisition of fixed assets that will be used in the project (buildings, facilities, equipment)
In management accounting, cost management has a crucial role and finds its foundations in understanding “cost behaviour”. “Cost behaviour analysis” can be defined as “the study of how cost changes when there is a change in an organisation’s level of activity”. (Definition https://www.accountingcoach.com/blog/what-is-cost-behavior).