![]() ![]() ![]() Get reimbursement for allowable overhead costs from federal and state grants, to the extent that this is allowed by the grant.RCW 43.09.210 requires that all service rendered by one department to another shall be paid for at its true and full value by the department receiving the service, and that no department shall benefit in any financial manner whatever by an appropriation or fund made for the support of another. Comply with state law and minimize audit issues.Relieve pressure on the general fund by allocating certain general fund costs to enterprise or other funds that receive a benefit from support services.Ensure accuracy of cost-based user fees for public services such as utilities, development review, parks, or any other service where the user pays a fee for service.Equitably share the costs of shared facilities and support services between departments, programs, and funds throughout the organization.Identify the actual cost of services being provided to the citizens.A formal cost allocation system can help a jurisdiction: ![]() There are a number of reasons that a local government should develop a cost allocation plan or system. Indirect costs, commonly referred to as "overhead costs" or central services, are for support services that are shared by multiple departments, programs and/or funds, such as accounting, payroll, administrative, or human resource salaries and benefits information technology (IT) services for the entire municipality or operating and maintenance costs for city hall or other buildings shared by multiple departments.įor example, the full cost of the Public Works Department includes its direct costs (wages, benefits, maintenance, and operations) plus the indirect costs/"overhead" of support services received from central services (such as accounting, payroll, and IT).Ī cost allocation plan distributes these indirect costs to ensure that the respective funds are fairly and accurately paying for the services they receive. ![]() This approach works best in a services business, where there are many employees.Cost allocation refers to a process of accounting and recording the full costs of a government service by including its indirect costs or "overhead" in addition to its direct costs.ĭirect costs are those that clearly and directly benefit a specific fund or program, such as supplies, materials, staff salaries and benefits, or consultant fees that support a single department or project. If the bulk of a company's costs are related to personnel costs, consider allocating the indirect costs of personnel based on the number of employees or the number of labor hours consumed. If a cost object (such as a production line) takes up a fair amount of square feet, those expenses related to facilities costs can be allocated based on the square feet used by the cost object. The reasoning behind this allocation is that the subsidiary with the highest activity level can afford to bear the burden of corporate overhead. The cost of corporate headquarters may be allocated to subsidiaries based on their revenue. The resulting allocation can be quite inaccurate, but is easy to derive. Direct Labor Hoursįactory overhead costs are routinely allocated to products based on the number of direct labor hours used in the production of the products. Examples of Expense Allocation MethodsĮxamples of expense allocation methods are noted below. However, if considerably more precision is needed, perhaps to make a management decision, then a more complex allocation method can be used, such as the activity-based costing system. This approach is commonly taken when using expense allocation to comply with the dictates of an accounting standard. If a business does not require an overly precise expense allocation, it can rely upon a simple formula that is easy to derive. Thus, the resulting full absorption costing of a cost object is inherently inaccurate. By its definition, an allocation is bound to be imprecise. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |