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
[4] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 3, Cost Assignment, p. 54-59
Decision tree approach: This approach is suitable for projects that do not have to be funded all at one time. The alternatives, probability of payoffs are identified using diagrams which are simple to understand and interpret with brief explanation giving important insights. It identifies managerial flexibility to reevaluate decisions using new information and then either invest additional funds or terminate the project.
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.
Cost Segregation is the process of allocating the total cost of a property into the appropriate property classes in order to compute depreciation deductions. When a client purchases or builds a commercial property, as per MACRS, it is depreciated over 39 years. The building has several components, the tax law considers that some of these components will last the full 39 years, however, pieces and parts of the building have a shorter life. While conducting a cost segregation, these components are identified and a fraction of the total cost of the building is allocated to each component. Then depending on its classification, a shorter depreciation schedule is applied.
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.
After these overhead costs are assigned, the costs can be allocated to the various retail stores based on their consumption of the good (e.g. the number of musical works they stock and sell).
Budgeting Assignment A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of a manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496)
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.
Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).
Second is the cost allocation where energy is used to provide process or space heating, it is fundamental to know where the costs associated with energy are actually being incurred. The cost of energy are allocated to a particular product, department or other user by flowmetering which usually result in a significant reduction in total energy costs.
For decision making purposes, the projects can be further divided into two groups which is independent project and mutually...
Project Planning 7 VIII. Quality 8 IX. Cost Estimating 9 X. Risk Identification and Management 10 XI. Facility Startup and Project Closeout 11 XII.
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)
Activity-based costing is used as a supplement of traditional cost accounting in a company to support manager in internal decision making. It focus on assigning the indirect cost to direct costs in order to get a more accurate cost on products. Activity-based costing uses several cost pools instead of one in traditional cost accounting. The system is easy to implement and it provides many benefits, it allows the company to respond to inefficiency by reallocating resources to more profitable activity from areas that absorb too many resources. It also allows the company to respond to manufacturing overhead cost and assumes a more accurate selling price on products in order to make more profits. Company that do not have internal expertise to conduct activity-based costing analysis may think to hire one or ask company that provides this kind of services for help.