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Cost allocation refers to assigning a cost that is standard to various cost objects. For example, if a company has one electric or water meter, it may apportion the cost of the electricity or water to various departments that use electricity. Allocation is arbitrary in nature whereby the kind of allocation done is on the basis of estimates.
US Army Corp
The main reason why cost allocation is done from a federal point of view is to ensure that the cost of running projects is distributed equitably. US Army Corp of engineers always worries about cost allocation because it helps them know the magnate of project costs that is reimbursable. Again, cost allocation is important especially for future allocations to ensure that actual allocation is done as opposed to estimates (US Army Corps of Engineers, 2010).
Cost allocation also ensures that the kind of costs apportioned for a given project is in line with financial plan outlined. Even though the US Army Corp is a part of the federal government, cost allocation remains important as it ensures that all projects are catered for.
City of Seattle
When cost allocation is being done, there are some factors that are usually put into consideration and are known as drivers. I do agree with the method that has been used in cost allocation. By so doing, it ensures that every aspect in every department is well catered for (Cityofseattle, 2010).This kind of cost allocation addresses every activity that goes on and therefore helps to ensure that no part is left out.
The reason for choosing these drivers was to ensure that it is all inclusive. Although these drivers may seem numerous and hence the need to combine them and have a blanket and uniform way of allocating funds, this method is preferable because it ensures that nothing is left to doubt. The uniform or blanket method of cost allocation may sometimes lead to lack of sufficient funds to run some of the project.
However, when cost allocation is done in this manner, then there is a very slim chance that any essential project will be left unattended. Although cost allocation is mainly done in manufacturing companies, it is also important for cost allocation to be done in the government since the government has equally several sectors and departments each of which is charged with different activities. By so doing, it helps each department to function more effectively.
U.S Department of Human Services
The U.S Department of Human Services has an exceptional department that looks at the allocation of cost. The reason of having this division is to ensure all pertinent issues which are several in numbers are well addressed since this department exclusively deals with such issues (DHS, 2010). This department administers cost allocation to hospitals, colleges and universities mainly through reviewing and negotiating cost rates that are indirect.
Usually, these cost rates once received are subject to review which takes about 180 days as from the day when they are received (Young, 1985, p.54). It is important to point out that cost allocation is not just important for government agencies but also for private agencies which may have several departments.
When an organization carries out cost allocation, it becomes easier to keep track of all projects of every department. For example, if an organization has five or more departments, it will be important to allocate funds for each department so as to keep an easy track on the projects and ensure that all have been catered for (Bryden, 1985, p.34).
Bryden, D. (1985). Cost Allocation. South Africa: S.N.
Cityofseattle (2010). City of Seattle Budget for 2009 – 2010. Web.
US Army Corps of Engineers. (2010). Walla Walla Project. Web.
US Department of Human Services (DHS) (2010). Financial Accounting, Division of Cost Allocation. Web.
Young, H. (1985). Cost allocation: methods, principles, applications. Holland: North- Holland.